Prime Minister Boris Johnson set out the Conservative party’s election manifesto over the weekend; which contrasts to the Lib Dem and Labour proposals as he offers less government spending and less tax cuts than the opposing parties. The primary message in Johnson’s 59-page ‘Get Brexit Done, Unleash Britain’s Potential’ is to deliver Brexit by the January deadline. He aims to bring the Withdrawal Agreement back to Parliament in December and form a new trade deal with the EU by the end of 2020. Second to this, is a relatively modest set of spending plans which includes a promise to raise the number of nurses by 50,000, vastly trumping Corbyn’s 24,000 increase. His approach is to increase spending for a short while and freeze the taxes that he previously promised to cut.
Johnson’s manifesto might disappoint members of the public who have so far helped boost the Tories in the polls to 43%, compared to Labour’s 30% and the Lib Dems 15%. Critics may cite his proposed deadline for securing a new trade deal as unrealistic and highlight the abandonment of previously proposed tax cuts. With the general election less than three weeks away and all campaigns in full force, polls are likely to hold greater weight in determining the short-term path of Sterling, with Tory support so far being Sterling positive and Labour being Sterling negative.
Bottom Line: The Bank of England will be relieved that all major parties are campaigning for greater government spending as the bank’s monetary policy view tilts more to the dovish side. Friday’s shocking UK PMIs rung the alarm bells, suggesting the UK economy is deteriorating. The outcome of this election for the UK economy looks certain to bring greater spending which may just keep the UK away from recession next year.
On Friday, trade-weighted Dollar appreciation through the 50-day moving average nudged this pair lower, with a substantial amount of that appreciation unwinding this morning. More importantly however, the trade-weighted Dollar remains above the key moving average technical levels. It’s a quiet data day so headlines will continue to drive markets as the US heads into Thanksgiving on Thursday.
GBP/EUR was very flat last week, given the negative surprises we received Friday morning. It goes to show how little the economic backdrop is factoring into currencies at the moment. Both UK Services and Manufacturing Purchasing Manager Index figures had deteriorated, which neatly pairs with the poorer-than-anticipated EU Services PMI. A very quiet week expected on the data front for this pair.
The only big mover – only relatively though – of the week was EUR/USD, as Euro losses propelled the trade-weighted Dollar higher. We’re not sure how much can be attributed to the lacklustre data and how much to the back-and-forth US/China trade headlines. Prior to the US bank holiday there are a few US data points worth considering, although headlines will continue to drive the currency market for the time being.