Ransquawk

U.K. Government stumbles on

The U.K. Government managed to deliver a Queen’s Speech last week but getting a positive vote on its contents is far from certain. The Opposition Labour Party are likely to put forward several amendments and it is these amendments that will decide if the minority Government survives or falls.

Another election, probably in the Autumn is the most likely scenario but it remains to be seen who will lead the Government into it or who will govern on its aftermath.

Sterling continues to defy gravity managing to cling to the level, against the dollar, that it was trading at before the election was called in April. The euro continues to be strong but even there the pound is seeing good buying interest around 0.8800.

A collapse is never far away but so far, the market is either in a wait and see or totally confused state.

Gone are the days of a 250 pip move just at the mention of a hard Brexit. A kinder, less volatile market allows traders to run positions longer but doesn’t provide the more aggressive trader with the ranges to make day trading come alive.

Three hikes and you’re out!

The Federal Reserve is held in high regard by the FX market. The FOMC meeting is still the one that is most eagerly anticipated. Previous Fed Chairmen like Alan Greenspan and Ben Bernanke may not have always been right, they certainly weren’t always agreed with but they had one thing that a Central Banker needs above all else; Respect.  

Credibility is in short supply following the quantitative easing (QE) measures introduced in the U.S., U.K., and latterly in the Eurozone. These measures have been in place for years in Japan.

Economists couldn’t believe that a Central Bank would debase its own currency by simply “printing” more and ballooning its balance sheet.

The effect of these bold moves has been verified. In the U.K. it was wholly necessary and has been supported. In the Eurozone, the delay before joining in was a healthy attitude studying both the Eurozone economy and the effect on others before taking the plunge.

In the U.S., the question of QE has been a controversial issue. To debase the dollar, the “world’s currency” was almost sacrilegious but desperate times called for desperate measures.

Withdrawal of this accommodation has been too slow for some particularly since rates are being hiked. The reason for the rate hikes is less about the economy and more about the stock market

Data releases to support Euro

Confirmation of U.S. Q1 GDP will be announced later this week. It should be unchanged from previous releases at 1.2% YoY. This is not a particularly impressive read for an economy embarking on a return to stable monetary policy having hiked three times.

Economic data in the Eurozone has been generally supportive although a lack of inflation in the region is a cause for concern and will keep rates low for some time.

Growth, consumer confidence and industrial production are on the rise. Purchasing Managers Surveys show healthy order books and wages growth is on the rise. The Euro is in a generally supported phase but a sustained rise above 1.1250 against the dollar and 08880 versus the pound will need a series of positive events and maybe a further U.K. disaster.

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