Sterling falls, French election developments weigh on Euro

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7 March 2017

Written by
Matthew Ryan

Senior Market Analyst at Ebury. Providing expert currency analysis so small and mid-sized businesses can effectively navigate international markets.

Sterling slipped to its weakest position against the Euro in seven weeks on Monday. Ongoing uncertainty regarding Britain’s Brexit process and the recent run of weak economic data continues to weigh on the Pound, which also approached a fresh seven week low on the US Dollar yesterday.

L
ast week’s news that the House of Lords had voted in favour of an amendment to Prime Minister Theresa May’s EU bill appears to have pushed back the earliest possible date to which the PM can begin formal Brexit talks. We think this is no more than a mild setback, although the uncertainty created continues to limit gains for the Pound, particularly following last week’s disappointing PMI readings.

The US Dollar clawed back ground against the single currency yesterday, having fallen rather sharply during morning trading. On Monday morning it was announced that former French Prime Minister Alain Juppe would not be standing in the country’s Presidential election in place of scandal-hit Francois Fillon.

The announcement from Juppe has refuelled concerns that far-right National Front leader Marine Le Pen could be named the country’s next President at the election in May. Polls released last week suggested that Juppe stood a better chance of preventing Le Pen making it through to the second round of voting than fellow Les Republicans member Emmanuel Macron. It’s worth noting that Le Pen still comfortably trails Macron in the second round polls.

Focus in the currency markets this week will be firmly on political news and expectations for Thursday’s European Central Bank meeting. We think the failure of ECB President Mario Draghi to formally begin abandoning his dovish stance could see the Euro test its recent five week lows against the Dollar.

Major currencies in detail

GBP

The Pound fell 0.3% against the US Dollar on Monday, still on the back foot following last week’s PMI data.

Upside for the Pound remains fairly limited at present after last week’s poor manufacturing and services PMI’s dampened optimism surrounding the overall health of the UK economy post-Brexit vote. The sharp drop in both indexes is a concerning sign that the uncertainty associated with Brexit is beginning to have a negative impact on investment decisions.

Economic data is fairly light in the UK this week. We instead await news on when Theresa May will formally trigger EU exit talks. Bookmaker odds are currently pricing in upwards of a 70% chance that this will take place before the end of the month.

EUR

News that former French Prime Minister Alain Juppe would not be standing at this year’s election erased gains for the Euro as markets opened for the week in the UK. The single currency finished the session 0.2% lower against the US Dollar.

Monday’s investor confidence index from Sentix suggested that sentiment among European consumers and business is so far seemingly unaffected by the uncertainty created ahead of a busy election period. The index rose to its highest level in almost 10 years in March, increasing to 20.7 versus the 18.5 consensus.

This morning’s updated fourth quarter GDP numbers are expected to remain unrevised. Almost all attention in the Eurozone this week will be on Thursday’s ECB meeting and the latest opinion polls ahead of both the Dutch and French elections.

USD

A fairly quiet day of news caused the Dollar to end trading just 0.2% higher against its major peers yesterday.

Expectations that the Federal Reserve will hike interest rates for only the third time in a decade this month continued to grow on Monday. Fed funds futures are now pricing in around a 95% chance that the central bank will hike on 15 March, sharply higher than the 30% priced in a fortnight ago.

Tuesday looks set to be a particularly quiet day in the US in terms of economic announcements. This Friday’s labour report and expectations for next week’s FOMC meeting will be the main driving force behind the Dollar in the coming days.

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