Monex: Game day voor het Britse pond

Monex: Game day voor het Britse pond

Britse pond Dollar Euro
Engelse pond.jpg

Hieronder volgt een commentaar in het Engels van Ranko Berich, Head of Research bij Monex Europe op de koersbewegingen van de euro, het Britse pond en de Amerikaanse dollar.

GBP

The UK electorate turns to the polls today after the Conservative prime minister Boris Johnson called a snap election to break the Brexit deadlock in Parliament. The pound has been trading in a subdued manner over the last 24-hours, with volatility expected to remain low until the exit poll is released at 23:00 CET tonight. Recent trading has suggested that any majority resulting from today’s election is sterling positive from its current levels as it increases the likelihood of a Brexit deal being passed into domestic legislation, resulting in a level of certainty for the UK economy. Polls have suggested in the run-up to tonight’s results that a Conservative party majority is likely, although the conviction of this forecast has been trimmed substantially this week. Results are expected from around 24:00 CET but markets aren’t likely to show another serious bout of volatility until key swing seats start to publish results at around 03:00 CET on Friday. Options markets are pricing volatility at similar levels to the March 2019 deadline, with the cost of hedging against the expected heightened volatility some 25% higher than the 2017 election.

EUR

The euro rallied after yesterday’s Fed meeting where the FOMC kept rates on hold and the dollar broadly weakened. Today, newly elected European Central Bank president, Christine Lagarde, will conduct her first monetary policy meeting as the head of the governing council. There has been plenty of criticism about Lagarde’s appointment due to her lack of academic economic experience, so criticism about the ECB’s current accommodative stance is likely to be plentiful in today’s press conference. Benign economic conditions in the Eurozone add another area of complication for the new president of the governing council. Inflation has consistently missed the ECB’s target, inflation expectations have dramatically fallen, and growth in member states has been tepid. Volatility in EURUSD is likely after the meeting as markets become accustomed to the shifting communication style, while Lagarde is likely to continue highlighting the drawbacks from negative rates. Options markets are expecting heightened volatility in EURUSD due to the ECB announcement and UK election with overnight implied volatility rising to its fourth-highest reading of the year, suggesting a welcome break from its recent tight range trading.

USD

The dollar remained under broad pressure yesterday, as the Federal Reserve confirmed yet again that monetary policy was on hold, and that the bar for rate hikes has been raised significantly over the past year. The tone of the press conference suggested that the Fed’s reaction function was changing to be far less concerned with upside inflation risk. In previous periods of strong US economic performance, the FOMC indicated - or actually executed, as in 2018 - a cycle of rate hikes in anticipation of future inflation. Last night’s press conference suggested that this won’t be the case as Fed officials showed more confidence in the US labour market and seemingly shedded its traditional fear of the labour market sparking inflation. This removed the prospect of rate hikes from the Fed should the labour market continue to tighten, which was also evidenced by the downward revision of the 2021 and 2022 median projections, prompting yields to tumble and the dollar to take on water.