Pound surges as Conservative manifesto launch avoids repeat of 2017 disaster

The pound got off to a stellar start this week, surging in response to the Conservatives continued lead over Labour.

Sterling is giving some ground this morning however, with GBP/EUR subdued at €1.1687, GBP/USD muted at $1.2873, and GBP/CAD flat at C$1.7135. GBP/AUD and GBP/NZD are holding steady at AU$1.8994 and NZ$2.0056 respectively.

With data thin on the ground today we can expect UK politics to remain front and centre. Could the pound climb if the Tory’s extend their lead in the polls?

What’s been happening?

The pound rallied on Monday, with markets cheering as polling data showed the Conservatives retained their commanding lead over Labour following the launch of the Tory manifesto over the weekend.

While the manifesto garnered a lukewarm response from some, this came as a major relief to GBP investors, who feared a repeat of Theresa May’s disastrous manifesto launch which cost her the majority in 2017.

Sterling’s advance again the euro was particularly strong given broad weakness in the single currency.

EUR exchange rates slumped yesterday as a modest improvement in Germany’s IFO survey was unable to shake fears that the country’s economy is still in the doldrums.

Meanwhile, the US dollar was left directionless as demand for the safe-haven currency was clipped by a risk-on mood in markets.

This came as a result of both renewed US-China trade optimism and the landslide victory for pro-democracy candidates in Hong Kong, which stoked hopes of the city finding a peaceful solution to the recent protests.

What’s coming up?

Expect to see UK politics remain a key catalyst of pound movement throughout the week.

This could see Sterling maintain its upward trajectory if the Tories are able to avoid any campaign setbacks which could erode their lead in the polls.

For EUR investors the focus will be on the European Central Bank (ECB) today following speeches by two prominent policymakers earlier this morning. Will a dovish outlook from the pair weigh on the euro?

In the absence of any notable domestic data, the US dollar may struggle to find momentum through today’s session if the news flow regarding US-China trade talks remains broadly positive.