Political disarray in Europe favours Greenback

​​​​​​Today's news headlines:

  • 'Sterling strikes three-month low on flare-up in Brexit angst’. Speculation that next week’s European elections will return strong gains for Nigel Farage’s Brexit party has taken a toll on the Pound. Big wins for the Eurosceptics could push back the idea of a customs union and elevate the risk of a no-deal outcome in October. (Financial Times)
  • 'Dollar near two-week high on upbeat US data, Treasury yield bounce’. The US Dollar is in demand as Brexit disarray hits the Pound and concern over the outcome of next week’s European elections is serving to pressure the common currency. (Reuters)

Brexit woes resurface

Yesterday, the Prime Minister’s fate was sealed, and the Pound continues to sell off. What’s more, Nigel Farage’s Brexit party is expected to make strong gains in next week’s European elections, and Boris Johnson might be making a play for the Conservative leadership role. There’s a chance that Theresa May could get her Brexit bill passed at the start of June, but as long as this remains unlikely, downside pressure on the Pound is expected to continue.

European elections

Italian political concerns rattled the Euro again after Deputy Prime Minister Salvini said that if his party made significant gains, they would ‘tear apart’ the EU fiscal rules which are strangling the country’s economy. This uncertainty is pushing investors towards safe-haven currencies, including the US Dollar, and with the final make-up of the new European Parliament unknown for another week, the risk-off mindset is likely to remain.

GBP/USD

The Pound continues to sell-off against the US Dollar, having now fallen for eight of the last nine days. The pair is coming close to breaking through lows not seen since mid-February and with political uncertainty set to dominate over the next three weeks, stemming the slide could prove challenging.

EUR/USD

The Euro continues to plot a downward course against the US Dollar, with yesterday’s political comments over Eurozone member spending rules combined with some positive US economic data to push the pair a little lower once again. The safe-haven pull of the Dollar could well deliver further downside here in the near-term.

GBP/EUR

The Pound has now lost ground against the Euro every day for the last two weeks. Given the prospect of big gains for populist parties in next week’s European elections and the consequences this could have for the single currency, the market appears to be upweighting the UK’s political risk. If the Conservative Party cannot hold onto a majority, a general election would likely follow, and it’s this uncertainty which is taking a real toll now.