FX round-up: Sterling leaps as markets mark down political uncertainty

Alexander Bueso WebFG News | 18 Apr, 2017 16:08 - Updated: 20:05 | | |

money

Sterling shot higher as analysts said snap elections increased the chances that the UK would not crash out of the European Union, thus helping Westminster clinch a more benign outcome for the economy.

As of 1544 GMT the pound was rocketing higher by 1.51% to 1.2756 after the Prime Minister called snap elections for 8 June, with the Conservative party widely expected to increase its working majority in Parliament.

That meant cable was near its best levels since October, but still well off the 1.4877 it was at on the eve of the referendum.

According to Deutsche Bank's George Saravelos and Oliver Harvey, fresh elections will dilute the influence of those MPs which have been pushing for a Hard Brexit. According to the two analysts, it will also give May more leeway to reach compromises over key EU demands for a transitional arrangement.

"This sequenced approach materially reduces the "crash risk" of Brexit negotiations as well as strengthening the Prime Minister's hand in pursuing an orderly (and very lengthy) withdrawal. All of the above in turn reduce downside risks for the U.K. growth outlook over Brexit negotiations," they said.

The pound was also higher against the euro, gaining 1.06% to 1.1930 while against the Japanese yen it was 1.36% stronger at 138.69.

Analysts at Capital Economics are not entirely of the same view, although they do agree that the level of uncertainty might decrease somewhat from June, hence in their view Tuesday's gains for the pound.

"And while an election is likely to deliver the PM a stronger mandate, it does not make a “hard” Brexit completely clear cut," said Paul Hollingsworth, UK economist at Capital Economics.

Acting as a backdrop, the market implied odds of a 25 basis point interest rate hike by the US Federal Reserve when it next met in June continued to decline.

According to the CME's Fed Watch tool the chances of that have now fallen to 44.1%.

On related note, in remarks to the FT the US Treasury Secretary, Steve Mnuchin conceded that the timeline for the White House's tax cut plans has been pushed back a bit by its setbacks in Congress over healthcare reform.

Together with a surprisingly weak reading on the US consumer prices over the Easter break that saw the US dollar index fall back 0.45% to 99.84.

More news

20:37 Europe close: Stocks slip as traders mull ECB's next move

Stocks finished lower, tracking a weak start to trading on Wall Street and on the back of a mixed batch of economic data out of China overnight and a tweak in monetary policy by the People's Bank of China - a timely reminder perhaps of the potential ripple effects of US policy decisions and vice-versa.

18:01 London close: Footsie lower as traders test Sterling upside

London stocks finished lower on Thursday as the Bank of England stood pat on monetary policy, as widely expected, but amid dovishness across the Pond and on the other side of the Channel which resulted in a stronger Sterling.

13:18 BoE expects gradual and limited policy tightening over medium-term

The Bank of England kept policy on hold by a unanimous vote as had been widely-anticipated given previous guidance for a very gradual pace of tightening over the medium-term.

13:13 China tweaks lending rates after Fed decision

China's central bank tweaked two of its policy rates in what some analysts said was a bid to relieve pressure on the country's currency.

13:04 Google trends reveal the most searched terms of 2017

Bitcoin, the increasingly popular cryptocurrency has dominated Google’s top searches this year.

13:16 ECB keeps all rates unchanged, confirms guidance on asset purchases

The European Central Bank has opted to keep all its main policy rates unchanged, with policy-makers reiterating that they expect to keep all their key rates as they are until well past the end of the ECB's net asset purchase programme.

12:53 Zotefoams investing £12m in Croydon facility

Cellular materials technology company Zotefoams announced that it will invest approximately £12m to increase capacity at its Croydon site.

12:46 Europe midday: Stocks slip ahead of ECB

Stocks are holding lower, tracking a mixed close on Wall Street overnight and on the back of a mixed batch of economic data out of China overnight and a tweak in monetary policy by the People's Bank of China - a timely reminder perhaps of the potential ripple effects of US policy decisions and vice-versa.

12:42 Magnolia pleased with initial production at Gilchrist

US-focussed oil and gas exploration and production company Magnolia Petroleum announced on Thursday that the initial production rates for the Gilchrist 2016 1-36H well in Oklahoma had significantly exceeded its projections, producing 652 barrels of oil per day (bopd), with a volumetric flow rate of 1,178 Mcfd - or 770 barrels of oil equivalent per day - with an associated flowing tubing pressure of 120 psi.

12:44 Walt Disney to buy 21st Century Fox assets in $52.4bn deal

Walt Disney has (finally) announced an agreement to buy the entertainment assets of 21st Century Fox in a deal worth around $52.4bn.