U.S. Dollar dominates Pound and remains in tight ranges ahead of FOMC
The U.S. Dollar is trading in choppy ranges after a weekend of
mixed reaction to the UK snap election that has created such havoc for Prime
Minister Theresa May. All
eyes are on Britain as traders try to interpret what a hung parliament will
mean exactly to the Brexit negotiations that initiate in a week.
The European lawmakers were not going to
make things easy for PM May and now she has to worry about even maintaining her
job. It is likely she will have a lifeline through minority parties and form
a government, but it won’t be a strong coalition and it’s certain markets are
losing faith in her.
No data out today for the U.S., but the
week shall be crucial for dollar direction as the FOMC announces its
much-expected hike on Wednesday. It is already priced-in that the Fed will
increase rates, but the narrative thereafter is what concerns market
participants the most. Sales and manufacturing gauges throughout the week
will impact the overall story of potential greenback strength or argue that
there are stagnant indicators keeping the Fed hesitant to hike after June.
The Euro picked up steam after Friday afternoon and remained afloat
overnight following good news for the established European order in France and
to the national congress are going well for French President Emmanuel Macron
after some seats gained by moderates. The final round will be next Sunday and
we’ll see if Macron solidifies a helpful coalition in the legislature.
Meanwhile in Italy, the Five-Star
Movement, the anti-Euro party, suffered momentum loss by failing to get enough
votes to go to a second round of voting in very populated regions such as
Genoa. No electoral reform was passed, which means a snap election is highly
doubtful in Italy this year, thus lowering the political uncertainty of the
Euro-bloc. We expect Euro to potentially flourish slightly this week.
The Pound remains vulnerable and fell another half percent because
of the surprising results of the elections last week. The Prime Minister had to assign some
hardcore Brexiteers to her cabinet, hoping to win the graces of highly upset
Conservatives who are concerned Brexit negotiations are escaping their grasp.
May is still arduously working to build
enough of a coalition to have a government, but the drama behind the election
casts doubt on her influence. This week will be imperative for her to
coordinate an ability to still rule, but Labour and even Liberal Democrats are
set to have their say be heard. We see Pound trending downward the next few
days as this all gets settled.