Pound Consolidates Gains

Conservative gains to help Brexit negotiations

The main reason for the snap election being called in the U.K. has emerged. The Prime Minister saw an opportunity to increase the ruling Conservative Party’s majority thus giving it the cushion it needs to be able to both compromise where necessary and stand firm when needed in Brexit negotiations.

Since the triggering of Article 50, Brexit negotiations have proceeded out of the public eye. Due to the relatively small majority the Government currently enjoys, Mrs May has had to make concessions over transparency which could hamper her going forward.

The fact that the final deal will need ratification from Parliament will be far easier to swallow if the Conservatives have a majority of more than one hundred seats.

The pound consolidated its gains following Tuesday’s surge. It traded in a relatively narrow range against the dollar, between 1.2770 and 1.2860. Against the Euro the pound is building a base sub-0.8400 and is likely to be more driven by events in Paris than Westminster

Since the past two elections have resulted in a coalition in 2010 and a slim Conservative majority in 2015, a campaign where there is likely to be a clear winner should allow the pound to react positively to a period of relative stability.

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French Election too close to call

The disastrous Presidency of Francois Hollande has virtually killed off the final remaining truly Socialist Government in Europe. France has struggled to see any growth in its economy, Hollande has been forced to dilute workers’ rights and a strong currency has seen French ability to exports severely curtailed.

This has led to the rise of various centrist and right of centre candidates promising varying degrees of reform. The reformers range from Emmanuel Macron show sees France needing to remain at the centre of the E.U. believing that change from within is vital, to Marine le Pen, who believes that France should “throw the baby out with the bathwater” and start again. Her anti- E.U., anti-Euro platform saw its initial support wane somewhat in recent weeks.

Macron and Le Pen are the most likely candidates to move forward following Sunday’s ballot. Francois Fillon, the most experienced Politician in the race and the re-emerging Jean Luc Melenchon, a devout left winger are by no means out of contention trailing the leaders by a mere two per cent.

Melenchon has seen his support rise from ten per cent to eighteen percent in the past couple of weeks. A true measure of his increased support is that suddenly the other candidates have become defensive about a lurch to the left. They have started warning of the danger of the left with one threatening that under Melenchon, France would become “Cuba without the sun!”

The Euro has managed to consolidate above 1.0700 against the dollar but volatility will increase as Sunday approaches.

It is likely that it will be all “all hands to the pump” on Sunday evening as exit polls start to give a picture of the result. Any gains by either Le Pen or Melenchon will see the Euro fall considerably. Were those two candidates to poll the most votes, the whole fate of the E.U. and single currency will be called into question. The most beneficial outcome for the markets would be Macron and Fillon contesting the run-off on May 7th but it is difficult to see le Pen failing to get enough votes to move forward.

Carney speaking at IMF later

Bank of England Governor will be one of the first speakers at the bi-annual meeting of the International Monetary Fund in Washington later today.

He will be at pains to avoid any reference to the election and /or Brexit. He will likely refer to then obliquely as “obstructions” to the monetary policy path being forged by the MPC.

Domestic issues are put aside as the IMF concentrates on global partnerships and cooperation. Steve Mnuchin the U.S. Treasury Secretary has already adopted a conciliatory tone commenting that President Trump is not trying to “talk the dollar down” and praising China for intervening to strengthen its currency recently.

There is likely to be plenty of sparring over the final two days of the week. The major global headwinds are still forming; North Korea may launch again over the weekend, France will have just two Presidential contenders left and the first major interviews of the U.K. election campaign will take place.