Pound swings back into positive territory after snap election announcement

Andrew Cummings
April 21, 2017

U.S. Treasury yields fell as nervousness ahead of France's first round of presidential elections and ongoing geopolitical tensions increased demand for safe-haven U.S. debt.

At the time of writing the GBP AUD exchange rate was trending around 1.67 and the AUD GBP exchange rate was trending around 0.59.

Pound sterling edged higher at six-month top against the dollar when British Prime Theresa May called a snap election for June 8, pursuing her contingencies to help lift her party's majority ahead of Brexit negotiations. "The market interpreted the move as an effort to strengthen the prime minister's majority and reinforce a more unified stance for the upcoming negotiations with the EU", Unicredit analysts said in a note on Wednesday.

US housing starts and building permits for March, as well as industrial production, are also due later in the session.

The dollar index fell 0.51 percent, with the euro up 0.55 percent to $1.0699. The FTSE has now erased all its gains for the year. The pound was trading at $1.2825, down from $1.2840 but still higher than the pre-announcement level. It also cleared the 200-day moving average for the first time since June, putting the squeeze on a raft of speculative short positions.

MSCI's broadest index of Asia-Pacific shares outside Japan declined 0.6 percent, marking its lowest level since mid-March. Meanwhile, the Chinese market plunged for four consecutive sessions due to tighter regulations.

The dollar caught its breath in Asian trading on Thursday, holding above lows hit earlier this week as investors anxiously awaited this weekend's first round of presidential voting in France. The euro fell to $1.0714 from $1.0731.

The Dollar is also under some pressure as investors consider whether or not the Federal Reserve is able to push through more interest rate increases over the course of the year, given the recent unexpected string of softer than anticipated economic data.

The dollar was undermined in part by an eroding interest rate advantage as USA bond yields dived to five-month lows. May called for the election on Tuesday, sending the pound over 2% higher on the day.

A run of disappointing US economic data and doubts that the Trump administration will progress with tax cuts have quelled expectations of faster inflation and boosted fixed-income debt.

That, in turn, has taken the steam out of Wall Street. US gold futures fell 0.03 percent to $1,291.50 an ounce.

Goldman Sachs lost 4.7 percent in the largest daily drop since June after its earnings missed expectations as trading revenue dropped.

Meanwhile, expectations of a June rate hiked edged lower amid weaker than expected economic data and softer USA economic growth expectations, after Treasury Secretary Steven Mnuchin admitted that the Trump administration no longer expects to complete tax reform by August.

Other reports by iNewsToday