The End of May

PM May’s long-anticipated resignation announcement adds to political headwinds facing the pound, ahead of a quiet start to a holiday-shortened week.

Previous Day's Market Highlights

Sterling gained on Friday, despite the resignation of Prime Minister May after significant political pressure reached breaking point last week in the aftermath of a ‘bold, new offer’ on Brexit which did little to please any political faction. May announced plans to step down on 7th June, firing the starting gun on a Conservative Party leadership contest which is likely to be dominated by the UK’s divorce from the EU, with candidates set to be split between pro-deal and no-deal. While a pro-deal candidate would be the best outcome for sterling, the likelihood of a protracted leadership contest, with the prospect of a general election shortly after a new Prime Minister takes office, will both provide stiff political headwinds in the coming months. The contest is set to culminate with a new Prime Minister being announced in late-July, with Brexiteers Boris Johnson, Dominic Raab and Michael Gove the current favourites. For the pound, which largely ignored the release of April retail sales data, May’s resignation resulted in modest gains, with sterling adding 0.3% against the dollar and 0.25% against the euro, chalking up a first daily gain since 3rd May against the single currency, snapping the longest losing streak on record. 
Elsewhere on Friday, the dollar shed around 0.3% after disappointing durable goods orders sparking concerns over longer-term economic prospects. The report failed to show even a modicum of good news, with orders declining 2.1% in April, in addition to a 0.9% decline in the core orders figure, the latter falling to the lowest level since December 2018. Meanwhile, the single currency held steady on Friday, a trend which continued on Bank Holiday Monday after market participants were reassured that an expected populist surge in European Elections was more muted than expected. Despite the ruling centre-left and centre-right coalition losing their majority in the European Parliament, pro-EU forces continue to dominate, limiting the impact of elections on the market. In contrast, commodity currencies gained on Friday, with the Aussie, Kiwi and Canadian dollars all adding around 0.3% as risk appetite improved. 
Away from FX, equity markets gained on Friday, despite relatively cautious trading conditions ahead of an elongated weekend on both sides of the Atlantic. In Europe, the pan-continental Stoxx 600 gained 0.6%, while the US benchmark S&P 500 added 0.15% on Friday. Finally, oil prices firmed slightly on Friday, with both Brent and WTI adding more than 1%, though both global benchmarks recorded losses of more than 5% over the week.

Currency Pairing 08:00 Today Vs 08:00 Yesterday Four-Week High Four-Week Low % Change
GBP/EUR 1.1345 1.1776 1.1298 4.06%
GBP/USD 1.2690 1.3176 1.2605 4.33%
EUR/USD 1.1180 1.1265 1.1107 1.40%
GBP/AUD 1.8320 1.8882 1.8285 3.16%
GBP/NZD 1.9355 2.0021 1.9310 3.55%
GBP/CAD 1.7050 1.7728 1.6902 4.66%

Today's Market Highlights

A holiday-shortened week begins with a relatively quiet economic calendar, with no major releases due from the UK. Today’s main focus is likely to lie with this afternoon’s release of consumer confidence figures from the US, with markets expecting the index to record a further increase to 130.0, a level which would be a 3-month high. Markets are likely to look particularly closely at the impact of increasing US-China trade tensions on the US consumer, in addition to attempting to gauge the impact an increase in confidence will have on consumer spending and thus future economic growth. While an upbeat release may spark some demand for the dollar, the longer-term focus for the greenback remains on ongoing geopolitical issues. 
Elsewhere, sterling traders will remain glued to developments inside the Westminster political bubble, with an ever-growing field of candidates competing to become Conservative Party leader. Markets may become increasingly jittery should a no-deal advocating candidate become a frontrunner, however the situation remains fast-moving and fluid. Meanwhile, for the euro, focus will fall on this morning’s sentiment figures. Markets expect business climate figures to fall to their lowest level since August 2016, exemplifying the fragile situation currently being seen in the eurozone economy. Consumer sentiment figures are expected to hold steady at -6.5. Also eyed for the single currency will be this evening’s EU Council summit, where the first round of horse-trading over the EU’s top jobs is set to begin. Markets will be most interested in the identity of the next ECB President, however this will, for political reasons, largely depend on the nationality of the EU Commission Presidential nominee - a process which is likely to be protracted and almost certainly not decided this evening. The central bank calendar is also relatively quiet today, with only Banque de France Governor, and ECB President candidate, Villeroy due. Overnight, markets will hear from BoJ Governor Kuroda and RBNZ Governor Orr, with any comments on the monetary policy outlook likely to be of particular interest. 
Looking ahead to the remainder of the week, economic data remains relatively limited as the month of May draws to a conclusion. The main event for markets will likely be Wednesday’s Bank of Canada policy decision, though interest rates are expected to be kept on hold. Markets are likely to focus on the future outlook for monetary policy, especially after the BoC shed their tightening bias last month. Other focuses include the 2nd estimate of 1st quarter GDP from the US (Thurs) along with official PMI figures from China (Fri) and 1st quarter GDP data from Canada (Fri). This week’s economic calendar features no top-tier releases for the pound.

Today's Economic Calendar

Time Currency Release Consensus Previous
10:00am EUR Consumer Confidence (May) -6.5 -6.5
10:00am EUR Business Climate (May) 0.40 0.42
3:00pm USD Consumer Confidence Index (May) 130.0 129.2