Sterling losses expected to continue...

Week Commencing Monday 12th June 2017

 

UK: Hung Parliament means Theresa May's days are numbered!

Mrs May was told her position in Number 10 is “untenable” amid reports Boris Johnson is plotting a bid to oust the PM with the backing of Cabinet members.

However, Graham Brady, the influential chair of the Conservative 1922 Committee which represents backbench MPs, said there was no appetite for a leadership contest which could lead to a third General Election in just over two years.

Mr Brady acknowledged there had been anger within the party at Mrs May's failure to express any regret for the Tory MPs who lost their seats when she returned to No10 on Friday to announce she was carrying on at the head of a minority Government. Mr Brady said the loss of their Commons majority meant much of the party's election manifesto would have to be abandoned and that Mrs May would have to present a considerably lighter Queen's Speech.

UK: British business confidence collapses as GE result increases political risk.

UK business confidence has fallen sharply since last Thursday's inconclusive election that left Prime Minister Theresa May weakened ahead of Brexit talks, according to a survey by the Institute of Directors.

The survey of nearly 700 members of the business group also exposed deep concern over the political uncertainty and its impact on Britain's economy. The Institute of Directors found a negative swing of 34 points in confidence in the UK economy from its last survey in May.

While 20pc of members were optimistic about the economy over the next 12 months, some 57pc were either quite or very pessimistic - a -37 net confidence score. That compares with a -3pc score in May. Businesses are now willing to reopen the subject of the type of Brexit that is in the economic interests of the UK after Theresa May failed to demonstrate there is public support for her vision of a hard Brexit in the election.

Small businesses also revealed almost all business leaders wanted to retain membership of the single market and customs union to ease trade with the EU and countries with trade agreements with the EU. These account for 61 percent of UK goods and services exports.

 

FX Forecast

Sterling (GBP) - Sterling remains on the back foot after an inconclusive general election. We expect Sterling to remain week for the short term as the government sorts itself out, then remain susceptible to Brexit and/or another general election news.

With this in mind, 1.12 versus the Euro looks likely and 1.25 on the Dollar within the coming weeks. Outside the election, the Bank of England MPC will likely drive prices this week.

US Dollar (USD) - The Greenback remains reasonably robust despite poor data flows from the US. Versus Sterling we expect range bound but bias to the downside while the Euro should continue to push the Dollar down. The FOMC will drive sentiment this week, with any indication of further rate rises likely to give the Dollar a big boost.

Euro (EUR) - The Euro maintains its current strength and continues to consolidate versus both the Pound and Dollar. With UK geopolitical risk continuing, couple with an improving European economic outlook, we expect continues strength this week and moving towards July.

 

Economic Calander for the Week

UK Data:

Obviously, all UK eyes continue to monitor the general election fallout which continues to be the chief market mover. That aside, we await the Bank of England MPC meeting on Thursday with the accompanying statement. We expect economic outlook to worsen and the meeting to be Sterling negative. Finally, inflation should be confirmed in at 2.7 percent for the month.

US Data:

In the US we start the week with Retail Sales on Wednesday, where we expect a month on month gain of just 0.1 percent versus last months 0.4 percent print. We then shift focus to inflation for May, with the number expect in at 2.0 percent. Finally, the FOMC should confirm its current hawkish stance with a further rate hike expected in the coming months. 

EU Data:

We have a light week for Europe with the ZEW Survey the highlight on Tuesday. We expect the survey to confirm confidence is rising on the continent, with the index likely to print 37.2 versus last months 35.1.

 

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