Currently the markets believe there’s a 70%+ chance of this happening. Same as last week, this week’s economic data will be closely watched for more signs that the UK economy is slowing which could push the other BoE members into cutting interest rates sooner rather than later. 2 out of the 9 members have voted for a cut in the last two meetings. Since then other BoE members have voiced their concerns and look likely to join the two looking to cut interest rate if this week’s data fails to show improvements. (Historically when a central bank looks to cut its key interest rate, its currency would devalue, this is why the markets are paying so much attention to what the BoE and ECB are saying).
The Conservative Party have, at the time of writing, secured 364 seats which gives it a clear majority in Parliament and prompting Jeremy Corbyn to say he will not lead the Labour party into the next election. This also followed Jo Swinson’s loss in Dunbartonshire East and the Liberal Democrats have announced that she would be stepping down with a leadership contest that would be held in the New Year. Meanwhile, following the strong showing of support for the SNP, Nicola Sturgeon has vowed to demand powers for a Scottish independence referendum.
There are no economic data releases of note in the UK, or the Eurozone. In the US, the November CPI is forecast to show a small rise in annual headline inflation to 2.0% (from 1.8% in October), while the core reading is expected to hold at 2.3%. For now the Fed remains more concerned that its preferred inflation measure is still below target.
With only a few days to go before the UK general election the polls are still pointing to the likelihood of a Conservative majority. However, there are still doubts over the reliability of most of the polls.
This month the 160,000 Tory members will vote on who they want to be the next Prime Minister and the verdict will be announced on the 23rd July. If the polls are correct and Boris takes over at No. 10, the chances of crashing out of the EU without a deal increases (some analysts are suggesting we’re seeing this partly priced into Sterling exchange rates already), therefore there is an expectation the GBP/EUR exchange rate will face further downward pressure. However if Jeremy Hunt manages to beat the odds and win, the GBP/EUR rate could recover some of the losses it has seen over the last 8 weeks. Overall it is a tricky period to predict exchange rates and it does look like rates will remain fairly range bound (€1.1130’s - €1.1230’s) over the coming week.
Market sentiment for the GBP/EUR rate is on a downward trend at time of writing. Sterling has begun the week weaker after this morning’s weaker than expected GBP data. A small but growing number of global banks are forecasting Sterling exchange rates to move lower in the coming weeks and month, suggesting political uncertainty and a slow down in the UK economy as the major risks for the UK currently. Keys levels to keep an eye out for will be the €1.1180’s If we see the rate move LOWER than this for a sustained amount of time, then the likelihood of the rate moving into the low €1.11’s will be high and a move towards €1.1080’s will be more likely.
With PM May on the way out and most likely Boris on the way in, a number of analysts have begun to forecast more pain for Sterling exchange rates. We'll know who the new PM will be by the end of July but speculation and comments from those lined up to replace May will be closely watched for signs that they'll push for a Hard or soft Brexit.
The GBP/EUR rate spiked higher towards €1.1750's late Friday on rumours an agreement could be reached between May & Corbyn but as with most rumours, unless they are substantiated then exchange rates tend to fall back which is what we've seen since Friday.
“Brexit Is Back, And It's Already Being Described as The Most Disappointing Season Yet” Talks between Labour and Conservative officials are set to resume today after members of Parliament return to London from their Easter break. If a deal can’t be sealed before European Parliament elections are due to be held May 23, the prime minister’s allies fear she will lose her chance and could be forced out, according to the people, who asked not to be named.
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