Election day arrives
Harold Wilson, a Labour Prime Minister in the sixties once commented that “a week is a long time in politics”. Multiplied by seven we seem to have had an interminable wait for today to arrive.
Despite interest driven by polls, the campaign has been turgid in both content and delivery. The main political parties have clashed over the usual issues, accusations have been made and countered, the gaffe count has been surprisingly low but finally polling day has arrived.
The pound has held onto the majority of the 4% gain it made when the election was called. The 1.3000 level remains tantalizingly close. Sterling has closed higher on eight of the last ten trading days but today will depend upon liquidity. The 1.2900 level has now been successfully breach as the pound closed at 1.2958
The massive move seen on the day of the Brexit referendum result was due, to a significant extent, to liquidity drying up almost completely. Should the same thing happen today and the result be in line with predictions early in the campaign a similar outcome could be seen albeit in the reverse direction.
Only monetary policy holding euro back
Over the course of the election campaign the pound has weakened by 5% against a resurgent euro.
The common currency has benefited from several factors during Q2.
Today the ECB meets to discuss monetary policy against a backdrop of almost total positivity within the eurozone. Given the diversity of the political, social and economic background of its members it would be remarkable if every corner of the region were performing in an identical manner.
The French presidential election, won by the centrist Emmanuel Macron, seems to have been the catalyst for the start of a more settled period. Confidence has returned, the economy is starting to grow and inflation is controlled.
Inflation most concerns Mario Draghi. He sees growth at 1.7% YoY as acceptable but his central banker psyche cannot compute growth without inflation. This is leading to concern over the viability of the economy.
The paradigm that is the eurozone must be allowed to grow organically. It is, to all intents and purposes, an experiment that needs time to “bed in”.
The euro is established above 1.2900 against the dollar and is now looking to test the 1.3020 level not seen since last August.
Comey set to testify
The ability of Donald Trump to deliver on his election promises will be severely tested today as former FBI director James Comey testifies before the Senate Intelligence Committee. If he confirms that he was pressured by Trump to drop his investigation of, what has become known as, Russiagate, then Pandora’s box will be well and truly opened.
For Trump himself, it was business as usual yesterday as he nominated Comey’s successor.
The dollar index, which measures the dollar's overall performance, has fallen close to 5% since February as this crisis has grown. It closed yesterday at 96.72 having been above 100 as recently as April 21.
Following last week’s weaker than expected employment report, any further delay in Trump's fiscal plans a rate hike next week will be called into question even more.
The Fed is already facing questions over whether it has allowed sufficient time for this year’s two hikes to “feed through” so it will need to be certain a third hike is necessary before pulling the trigger next Wednesday.