Currency markets are starting the new month in a relatively reserved manner. The Pound may have pulled away from the fresh lows against both the US Dollar (GBP/USD) and Euro (GBP/EUR) which were posted on Friday, but there’s little around to justify the support here. Mounting uncertainty as to what happens next in Westminster and the fact that the UK could soon be faced with a general election will do little to help support the Sterling exchange rate in the near-term.
Update: The Pound has begun Tuesday making some limited gains against the US Dollar (GBP/USD) after the Federal Reserve intimated that it may need to make an interest rate cut. Meanwhile, against the Euro (GBP/EUR), the Pound is trending lower. While the British currency may be dampened by the UK’s political and Brexit chaos, the Euro was able to make significant gains against the US Dollar (EUR/USD).
Pound Sterling Exchange Rate Struggling Amid Political Turmoil
As Theresa May prepares for her last few days as leader of the Conservative Party, the race to replace her is picking up the pace. At the last count, some 13 candidates had declared their intention to run and more may yet emerge. The big concern, however, is that many of the front runners are taking a hard-line approach to Brexit, and are prepared to leave without a deal; the country’s manufacturing sector is worried this is having a direct impact on order books. Specifically, EU-based buyers are reducing their reliance on UK manufacturers, something that will continue to pressure the Pound against the Euro (GBP/EUR).
Donald Trump Arrives in the UK – What does this mean for Currencies?
The US President begins a three-day state visit to the UK today. Breaching conventional diplomatic protocols, he has already offered his views on who should be the UK’s next Prime Minister and markets will be closely following his narrative in the coming days. There will be plenty of opportunities to provide updates on plans to hit the European Union with trade tariffs and such news could prove damaging for both the Pound and Euro against the US Dollar (GBP/USD, EUR/USD). The downside could, however, be limited to a degree, following Friday’s market reaction to the surprise tariff increases on Mexican goods, where the safe-havens of the Swiss Franc (CHF) and Japanese Yen (JPY) were the biggest winners.
GBP/USD, EUR/USD and GBP/EUR Exchange Rate Movements
The Pound has managed to rebound off Friday’s lows against the US Dollar (GBP/USD) although gains could yet prove short-lived. So-called short-covering going into the weekend break combined with the Greenback falling from favour in the wake of that latest US tariff news is seen as having been instrumental in delivering support, but political uncertainty in the UK has the potential to weigh on the British currency.
The Pound to US Dollar (GBP/USD) exchange rate is trading at 1.2612.
Despite German inflation coming in below expectations on Friday, the Euro has also been able to post some modest gains over the US Dollar (EUR/USD) since the end of last week. High-profile data releases in the coming days, plus any policy hints from Donald Trump, will likely determine whether such gains can be sustained.
The Euro to US Dollar (EUR/USD) exchange rate is trading at 1.1179.
The Pound saw some volatility against the Euro on Friday (GBP/EUR), and although losses proved to be short-lived, Sterling remains on the back foot. That political disarray in Westminster will likely continue to set the tone here for some time yet.
The Pound to Euro (GBP/EUR) exchange rate is trading at levels of 1.1281.
Why Did it Move – US Dollar to Swiss Franc (USD/CHF) Exchange Rate
The US Dollar lost almost a cent against the Swiss Franc (USD/CHF) on Friday as nervous traders sought out safe-haven venues for assets. The move pushed the pair sustainably below parity for the first time since early April, suggesting that the market’s patience with Donald Trump’s economic policies may be wearing a little thin.
Update: The Swiss Franc is trading at its highest level in almost two years against the Euro today after Trump’s stance with other nations firmed. It’s now not just China in the firing line, Mexico and India have also had developments from Trump’s trade tactics too.
Credit Agricole currency strategist Manuel Oliveri commented: ‘While the Swiss franc has appreciated strongly in recent weeks, much of that gain is due to the wave of risk aversion sweeping across markets and we need to see further substantial gains before the central bank has to step in.’
The Swiss Franc registered gains of around 2.0% in May alone, the most significant monthly increase in the last eight months.
The Pound to Swiss Franc (GBP/CHF) exchange rate is trading at levels of 1.2597, while the Euro to Franc (EUR/CHF) currency pair is at levels of 1.1167.