Merkel boosts euro, pound struggling as election uncertainty builds

Philip McHugh May 23rd 2017 - 2 minute read

UK political developments, comments from Europe and last night’s devastating terror incident have all left the pound struggling.

GBP/EUR slumped from €1.1625 to €1.1538, GBP/USD fell back below $1.30 to $1.2968, GBP/AUD began Tuesday almost a cent lower at AU$1.7296 and GBP/NZD tumbled from a high of NZ$1.8703 to a low of NZ$1.8440.  

Has the pound got further to fall? Keep scrolling to find out…

What’s been happening?

The common conception that the Conservatives would run away with the upcoming general election was dealt a blow on Monday. 

With Labour clawing back ten points in the latest polls the outcome is looking far less certaint and concerns about the impact this could have on Brexit negotiations left Sterling spiralling. 

Theresa May did eventually backtrack on the most contentious aspect of the Conservative manifesto (the so-called ‘dementia tax’) but by that point the damage was done.

Meanwhile, German Chancellor Angela Merkel was the catalyst for euro gains yesterday, with her remarks about the euro being 'too weak' sending the currency higher. The German leader blamed the level of stimulus currently being employed by the European Central Bank (ECB) for the euro's weakness, but whether President Mario Draghi pays any attention to Merkel's comments remains to be seen. 

While the pound remains close to 8-month highs against the US dollar thanks to impeachment whispers in the US, GBP/EUR is around four cents weaker than when the UK snap election was called in April.

The pound edged lower still on Tuesday as the world digested the headlines relating to a suspected terror attach in Manchester. By 8am the devastating explosion had claimed 22 lives, with a further 50 injured.

What’s coming up?

So far today Germany has published final first quarter growth data (which was confirmed at 0.6% on the quarter and 1.7% on the year) and trade stats. Both exports and imports came in lower than expected in the first quarter of 2017, with the figures for the final three months of last year also being negatively revised.

UK public finance data is also on the calendar.

This afternoon the GBP/USD exchange rate could experience volatility in response to the Markit US manufacturing, services and composite PMIs. If the data disappoints it could weigh on US interest rate hike expectations and see the US dollar soften.

However, as it stands both the manufacturing and services indexes are expected to show improvement.
Other US news to be aware of includes the nation’s new home sales report and the Richmond Fed manufacturing index.

Written by
Philip McHugh

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