Political uncertainty in the Eurozone was back in focus on Monday after a weekend where Italy and Spain posed problems which could lead to prolonged turmoil.
In Italy there was a collape of the populist anti-establishment coalition between the League and the Five Star Movement parties leading to another election. The next vote is expected to come between April and the start of next year, but could see the two parties join forces. Italy’s President turned down the coalition suggesting that their nomination for Prime Minister had previously said Italy should be pulled out of the currency bloc. Now, the next election could be something of a major event for Italy where citizens vote with opinions on whether to remain or leave the Eurozone at the core of their decisions.
In Spain, Prime Minister Maiano Rajoy is facing a vote of no confidence this week which could cause more problems for the euro.
Researc expert Jasper Lawler stated:
‘The overriding problem for investors is that these are two of the largest, most important economies in the eurozone. Euro traders are aware that the potential fallout from Italy mainly, but also this Spanish headache, dwarfs the fallout which could have been following the Greek debt saga and as a result the euro has fallen heavily out of favour and has continued to decline overnight. With potential elections just around the corner in both Spain and Italy, a summer of volatility now seems almost a given.’
Above update provided 29/05/18 08:17am.
The Pound has begun Friday in a tight range against the Euro (GBP/EUR) but falling against the US Dollar (GBP/USD) after Bank of England (BoE) Governor Mark Carney issued a Brexit warning.
The central bank mogul suggested if the UK government fails to secure a transition deal to remove Britain from the EU seamlessly, there could be heavy damage to the economy. Such a result could force the bank’s hand to execute another interest rate cut.
From a monetary policy perspective, the bank is ready for Brexit. Although the exact policy response cannot be predicted in advance, observers know from our track record that, in exceptional circumstances, we are both willing to tolerate some deviation of inflation from target for a limited period of time and that there are limits to that tolerance.’
Carney commented on how inflation could spike if the Pound tumbles again and suggested that hiking interest rates in this scenario could send the UK into an unwanted recession.
However, the Pound sank across the board when UK Gross Domestic Product (GDP) growth figures fell in line with forecasts. On the quarter, Q1 showed only 0.1% growth, while on the year the reading came in at 1.2%.
As the day went on, Sterling sank by around 0.50% versus the US Dollar (GBP/USD) and made minimal advances against the Euro (GBP/EUR). US Durable Goods Orders contracted by -1.7% in April. but March’s figure was revised higher to 2.7% which offered the Buck an excuse to gain.
Above update provided at 15:03 25/05/18.
The Pound has been trending in a tight range versus the Euro (GBP/EUR) on Thursday as the exchange rate reacted to UK Retail Sales data which showed a surge in purchasing. Meanwhile, the Pound is rocketing against the Turkish Lira, making gains of almost 4.0%.
UK Retail Sales Hit 18-Month High – Pound Exchange Rate Climbs
UK Retail Sales excluding fuel surged from 1.3% to 1.5% in April–an 18-month high, rather than falling to the 0.1% economists had forecast. However, it wasn’t all good news as the Office for National Statistics said:
‘Over the longer-term retail sales growth has slowed considerably, with increases in food, household goods and internet retailers being largely offset by declines across all other types of retailing.’
And for everyone who likes charts that go: up, down, up, down, up, down, up, down, up, down, up, down, up, down, up, down…… here’s monthly growth in UK retail sales. This month. Up! Last month. Dowwwn! pic.twitter.com/k9DP4TexHY
— Rupert Seggins (@Rupert_Seggins) May 24, 2018
Recently, Marks and Spencer’s announced it would be closing 100 stores and M&S Chief Steve Rowe has admitted that the business is having difficulties adapting.
Meanwhile, in the Eurozone, the German Gross Domestic Product (GDP) figure came in at a seasonally adjusted 2.3% on the year in the first quarter. The German GfK Consumer Confidence number slipped ever so slightly in June, down from 10.8 to 10.7.
Turkish Lira Drops Despite Interest Rate Hike
In Turkey, the Lira has been falling despite an attempt by the Turkish central bank to halt its slide. Despite an emergency rate hike yesterday, confidence in the Turkish currency has tumbled as President Recep Tayyip Erdogan has warned he may take the reins of the country’s monetary policy. He’s referred to interest rates as the ‘mother of all evil’ and has suggested that to combat high inflation (which currently resides at 11.0% in Turkey) interest rates need to be lowered – an opinion quite the opposite of many central banks.
Lira still F
(Even after last night’s emergency rate hike) pic.twitter.com/Ery62nazoN
— Tracy Alloway (@tracyalloway) May 24, 2018
The Pound to Turkish Lira (GBP/TRY) exchange rate is trading at 6.3555 – almost 4.0% higher. The Pound to Euro (GBP/EUR) exchange rate is trending in the region of 1.1408.