Sterling Slides as Tory Lead Narrows

Miltiadis Skemperis

Currency Solutions

Sterling Slides as Tory Lead Narrows

The Pound has fallen from its six-month high to the US Dollar last Friday, when a series of robust data releases had pushed Sterling up past $1.30. The Conservative manifesto’s social care and pension policies were unpopular with older Tories, according to weekend polls. Brexit Secretary David Davis further weakened the Pound by saying the UK could leave the negotiating table without a deal, if EU insisted the “Brexit bill” had to be paid.

The US Dollar is tentatively rising on relief because, so far, president Trump’s first foreign trip has been a success. “The deal maker in chief” is negotiating large deals for the US, which calms the global markets by distracting attention from his political gaffes back in the US.

Pound Sterling – UK Markets

Monday morning wasn’t good for the British currency. Sterling slumped against its two main competitors, the Euro and the US Dollar. Exchange rates were set at €1.16 and $1.29, respectively.

The Pound weakened, reacting to political news coming out of the UK. The latest YouGov voting intention survey for the Sunday Times, showed the Conservatives on 44% and Labour on 35%. The Tories’ 9-point lead is their lowest of the campaign so far. The Tory lead has halved to what it was just a week ago. The new data caused a stir in markets, because Theresa May’s victory with a large margin seemed to have been already priced in.

The British currency suffered a second blow, this time by what Brexit Secretary David Davis said to the Sunday Times. Davis warned that Britain will walk out of Brexit talks, if the EU doesn’t drop its demand to charge £86bn as a “Brexit bill”. “We need to be able to walk away. Under the circumstances, if that were necessary, we would be in a position to do it,” said the secretary. Davis also rejected a demand for every EU citizen who has lived in the UK to get full rights to live and work there. Davis’ words bring the UK on a collision course with the EU negotiators, who consider the preservation of citizens’ rights of central importance.

US Dollar – US Markets

The US Dollar strengthened against the Euro, setting the exchange rate at €0.89. It also increased its value against the Pound by 0.4%, reversing some of Friday’s losses.

The US currency was assisted by Donald Trump’s tour in Asia and Europe, which has overshadowed the ongoing investigations back in Washington. During his visit in Saudi Arabia, Trump and King Salman signed a $110bn weapons deal, involving defence contractors such as Lockheed Martin. The deal was hailed by the White House as “a significant expansion of the security relationship between the two countries.”

Trump spoke open against Iran, stating that “for decades it has fuelled the fires of sectarian conflict and terror.” Trump’s visit to Saudi Arabia marks a shift of strategy, totally opposite to Barack Obama’s approach towards Iran. On Monday, president Trump will be visiting Israel, which has already expressed muted concern to the deal made in Riyadh.

Euro – European Markets

The Euro managed to remain stable against the Pound at £0.86, but failed to control the US Dollar’s advance, losing 0.35% in value. The exchange rate between the Euro and the US currency was set at $1.11.

The renewed buying interest for the US Dollar made the single market currency fall from the $1.12 six-month high which was recorded last week. The outcome of Monday’s Eurogroup meeting may affect the Euro’s value. The two primary topics in the Eurogroup’s agenda will be Greece and the Brexit negotiations.

Last week, the Greek parliament passed yet another bill containing austerity measures and structural reforms. Pierre Moscovici, a Commissioner for economic and financial affairs, said he is hopeful that Eurozone’s finance ministers will reach a deal for Greece’s third bailout. Sigmar Gabriel, the German foreign minister, expressed the opinion that Greece needs a direct debt relief, and that the majority of Eurozone governments agree with him. Gabriel’s view is totally opposite to the “first reforms, then debt relief” strategy of Wolfgang Schauble, who is the German finance minister.

Other Currencies – Highlights

The Australian Dollar increased its value against the Pound. The Sterling to Australian Dollar exchange rate was set at 1.74 AUD. Standard & Poor (S&P) downgraded 23 Australian financial institutions in its latest report. The US-based credit rating agency reaffirmed credit ratings of the 4 major Australian banks with their outlook remaining negative. S&P said that the downgrade is related to concerns over high levels of private sector debt and high property prices.

The New Zealand Dollar proved strong for the Pound, making the British currency lose 0.45% in value. The Sterling to New Zealand Dollar exchange rate was set at 1.87 NZD. The announcement regarding New Zealand’s annual budget on Thursday is an event worth waiting for. A strong fiscal position and outlook is expected to trigger a positive market reaction, making the Kiwi stronger.

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