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After starting the day poorly the pound managed to make up some lost ground against several of the majors thanks to an election poll favouring a Conservative win.
GBP/EUR started Monday at €1.1417 but bounced back to €1.1497, GBP/USD rebounded from $1.2869 to $1.2943, GBP/AUD fluctuated between AU$1.7211 and AU$1.7318 and GBP/NZD moved between highs of NZ$1.8123 and lows of NZ$1.8020.
Is more pound volatility ahead? Keep scrolling to find out…
What’s been happening?
After a less-than-impressive start to the day the pound picked up in the afternoon. Conflicting election polls helped GBP shake off the impact of a below forecast services PMI.
The Markit report showed that growth in the all-important services sector slowed in May, with the measure falling from 55.8 to 53.8.
Markit economist Chris Williamson said of the report;
‘Although service sector business activity picked up in May, the PMI surveys for manufacturing and services collectively indicate only a modest pace of economic growth so far in the second quarter. Historical comparisons with GDP indicate the PMI is signalling second quarter GDP growth of just over 2%, suggesting there may be some downside risks to IHS Markit’s current forecast of a GDP growth rebound to just over 3% in the second quarter.’
Although a number of recent election polls have put the Conservatives and Labour neck-and-neck, the pound advanced on the back of an ICM poll giving PM Theresa May an 11 point lead on Labour’s Jeremy Corbyn.
The GBP/USD exchange rate also firmed as US non-manufacturing PMI, durable goods orders and factory orders figures came in below forecast. While the data is unlikely to prevent the Federal Reserve increasing interest rates in June, it could make the central bank more reluctant to continue raising borrowing costs over the rest of 2017.
What’s coming up?
The Reserve Bank of Australia (RBA) made its latest interest rate decision during the Australasian session. The central bank maintained the status quo but expressed optimism about future growth, leaving the Australian dollar little moved.
Given that the British public will be taking to the polls in just two days’ time, political developments will remain the driving force behind movement in pound exchange rates.
That being said, the GBP/EUR exchange rate could also fluctuate in response to the release of Eurozone retail sales figures for April. Consumer spending is forecast to have increased by 0.1% on the month, resulting in an annual figure of 2.1%.
A worse-than-expected result may help the pound edge higher against the euro, but a more robust level of consumer spending would be euro-positive.
UK data is now lacking until Wednesday when Halifax and RICS house price data will be published.
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