Sterling weakened by election polls

Today's Highlights

• Sterling weakened by election polls

• Euro recovers on French political situation

• USD mixed but Non-Farm Payrolls ahead

Current Market Overview

Yesterday saw the release of the minutes from the May meeting of the US Federal Open Market Committee (FOMC). The minutes revealed that most officials agreed that it's appropriate to raise interest rates again "soon”, which is in line with markets expectation of a June hike.

I hope yours was a good long weekend. We are back at our desks today along with most UK and US traders to see what the rest of the markets got up to in our absence. As it happens, it was largely a continuation of what happened through last week.

Sterling had a poor week, dropping on two main concerns. One is that the polls are showing a narrowing of the positions between the Labour and Conservative parties ahead of the UK elections. A strong majority for the Tories is seen as the most positive result for the Pound, so any watering down of that is bound to weaken Sterling. Sterling has also been knocked by softening UK data. That said, Sterling is back above its lows this morning and we look forward to a week that brings us a month-end as well as UK mortgage data and the UK Manufacturing Purchasing Managers' Index, but not a lot else. Hence, politics is likely to dominate the Pound and we all love politics, don’t we…..Oh, alright then.

The US Dollar had a better week last week, gaining against the embattled Pound and recovering somewhat against the Euro after upbeat economic growth data.  Much like the UK, there is a sparsity of top tier US data this week, but we will end the week with the US Employment report. That is forecast to be on the positive side, so further USD strength at the week’s end is a real possibility.

The Euro had a mixed week, strengthening on the assumption that the new French President will gain a full majority for his party in legislative elections in June. The week ahead brings Inflation and Manufacturing data from the Eurozone, as well as Unemployment data and both Industrial and Consumer Confidence Indices. It is likely to be a lively week for the Euro, so plenty of opportunity to buy or sell in the spikes and troughs.

Other than these items, the data diary for the next few days is pretty light. That doesn’t mean the markets will be quiet, by any means. In fact, things may well be very volatile as UK news reporters assess the relative merits of a May win in June and the kind of margin the Conservative party might achieve. The mood music seems to suggest Sterling will gain under a solid Tory majority, weaken if that majority is very slim and dive if Labour takes the day.  This is all just speculation, of course, but it should be noted that, of the $5 Trillion plus transacted every day in the forex market, it is estimated 95% is traded for speculative reasons. 
 
Have a great week.

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My wife left me because she says I am a compulsive gambler. I’ll bet she’s back by the end of the week.