UK confidence improves but the pound’s struggles continue

Can the Conservatives still emerge from the election with a greater majority? Or will the UK end up with a Labour-led coalition? As it stands the result is getting too close to call, and all the uncertainty certainly isn’t doing the pound any favours.

GBP/EUR fluctuated between €1.1543 and €1.1442, GBP/USD dropped from a high of $1.2877 to $1.2795, GBP/AUD gradually eased to AU$1.7146, GBP/NZD hit a worst level of NZ$1.8026 and GBP/CAD bottomed out at C$1.7201, down from C$1.7359.

What impact has today’s UK data had on the pound? Keep scrolling to find out…

What’s been happening?

Although a report published by analysts at JP Morgan indicated that a hung parliament could actually be good for the pound, GBP exchange rates failed to derive much benefit.

Up until now it has been argued that an outright win for the Conservatives, which would see the party increase its majority, would be the best outcome in terms of facilitating smoother Brexit negotiations. That assumption saw the pound drop when Conservative’s lead against Labour was dramatically slashed.

Now, however, JP Morgan has asserted; ‘In the post-referendum world, all political developments need to be viewed through a Brexit prism and an argument can be made that a hung parliament which delivered or held out the prospect of a softer-Brexit coalition of the left-of-centre parties ... might actually be GBP positive.’

The pound still closed Tuesday weaker in spite of this assumption, and extended some of these losses on Wednesday.

The euro did come under a bit of pressure of its own however as German inflation fell short of forecasts and rumours that Greece intends to default on upcoming bond repayments emerged.

What’s coming up?

This morning’s UK reports were on the mixed side. The GfK consumer confidence index actually improved unexpectedly, rising from -7 to -5 rather than falling to -8.

The result, while in the negative range, was actually still a four-month high.

According to GfK’s Joe Staton; ‘Perhaps the real squeeze in living standards is yet to hit home. We haven’t seen any significant fall (in consumer confidence) of the kind we might expect during such periods of pre-election and pre-Brexit uncertainty.’

However, while that result surprised to the upside the Lloyds Business Barometer was far less impressive, plummeting from 47 to 27. The British Retail Consortium’s (BRC) shop price index also eased -0.4% rather than the -0.3% projected.

This mishmash of figures left the pound little changed against most the majors, although GBP/EUR did edge slightly lower in spite of Germany’s retail sales data falling short. Consumer spending in the Eurozone’s largest economy fell -0.2% on the month in April (an increase of 0.4% was expected) with the annual figure printing at -0.9% rather than 2.2%.

Later today the UK’s mortgage approvals and lending data could spark a bit of movement, but attention is likely to remain fairly focused on political developments now that the general election is within touching distance.

The Eurozone’s unemployment numbers and inflation data could give the pound a bit of respite mid-morning as inflation is expected to ease in May. If inflation does fall to 1.5% on the year it would reduce the odds of the European Central Bank (ECB) making any attempt to adjust stimulus in the near future, reducing demand for the euro.

Meanwhile, Canadian growth data is likely to impact CAD exchange rates, while USD movement could follow the release of US pending home sales numbers.

We’re here to talk currency whenever you need us, so get in touch if you want to know more about the latest news or how it could impact your currency transfers.

Phil McHugh,
Trading Floor Manager

Phil provides dealing and hedging services whilst also helping to manage Currencies Direct overall market exposure.