TUESDAY 13TH JUNE 2017

The pound returned to post-election lows on Monday as the fallout from last week’s UK general election continued.

GBP/EUR hit a new seven-year low of €1.1282, GBP/USD slumped from $1.2743 to $1.2641, GBP/AUD edged down from AU$1.6918 to AU$1.6731, GBP/NZD lost initial gains to fall to NZ$1.7501 and GBP/CAD spiralled from C$1.7147 to C$1.6799.

How will the major currencies respond to today’s news? Keep scrolling to find out…

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What’s been happening?

As expected, the start of the week was shrouded in post-election mystery. At the moment the Conservatives are still aiming to govern with a minority government, but talks with the Democratic Unionist Party (DUP) are ongoing and there are rumours that the Queen’s Speech (a traditional piece of pageantry where the Queen announces the government’s legislative plans) will be delayed.

While the pound was fairly stable on Monday morning, the currency soon fell back to the lows seen last Friday as Moody’s credit ratings agency asserted that the current political situation could delay Brexit negotiations.

Moody’s also indicated that economic risks could be heighted as a result of the election. It stated; ‘The election outcome, with significant gains for the Labour Party, which had campaigned for increased public spending, will likely be seen as a ‘vote against austerity’. The public debt ratio will rise further and for longer than we had expected, placing the UK among the few highly rated European sovereigns whose public debt is still rising.’

Comments from Brexit Minister David Davis left the pound even more unappealing.

Some believe that this election result could ultimately lead to the UK pursuing a softer Brexit, but Davis seemed keen to disabuse that notion by stating that the government’s approach to Brexit had not been altered.

 

What’s coming up?

Today’s UK inflation figures and German/Eurozone ZEW economic sentiment surveys may inspire movement in GBP and EUR exchange rates.

Of course, any impact from the UK stats is likely to be muted in the face of current events.

The ZEW surveys may give the euro a lift however as the German current situation measure is expected to improve from 83.9 to 85, with the nation’s economic sentiment index also rising from 20.6 to 21.8.

The US dollar is likely to remain relatively sturdy ahead of tomorrow’s storm of domestic data and the Federal Reserve’s interest rate decision.

As the Fed is expected to increase borrowing costs, it will take hints that further rate hikes are planned over the rest of 2017 for the US dollar to experience much of an uplift.

 

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