Monumental Week Ahead for the UK

A monumental week ahead for the United Kingdom as we head to the polls on Thursday for a general election that could define the coming decades. As such, the election is going to be the key macroeconomic driver behind any GBP moves this week.  Recent polls show that Prime Minister Boris Johnson is forecast to win this election against his main opposition Jeremy Corbyn and the Labour Party. All 10 polls so far have signalled a Torie win with the ICM posting the smallest gap for the odds of victory. A lot of the sentiment surrounding a Conservative win was priced in last week with the GBP/EUR pair gaining over 2% for the week.

This morning is no different, as Sterling hit a fresh 31-month high of 1.1940 against the Euro after two polls showed gains for the Conservative Party and losses for Labour, confirming expectations that the party of Prime Minister Boris Johnson remains on track to secure a majority. Perhaps the most significant aspect of polling over recent days is a confirmation that Labour's recent attack on the Conservative's lead has stalled, ensuring the gap between the two parties is wide enough to allow the Conservatives a majority. In 2017 the rise in Labour's vote share proved relentless, such that by the time of the vote they were able to close the gap to just two points. Foreign exchange markets have been on alert for a repeat of this performance in 2019, but with just four days to go until the vote and only three days in which to campaign, the closing of this gap by Labour looks to be a remote prospect.

USD

The US Nonfarm Payrolls has got the market moving this morning. On Friday, the November jobs data from the United States came to the US dollar's rescue against an otherwise disappointing backdrop for the currency. The Nonfarm Payrolls impressed with a headline of 266K which was well above the 183K estimated – a stark reminder that the ADP report is simply not a dependable prelude. The headline was also complemented by upward revisions to prior months which added a further 41K to payrolls.

As we move forward, looking ahead for the week, expectations are that US Federal Reserve will keep policy and rates steady at 1.50-1.75% which will officially bring the mid-cycle adjustment that started in July to an end.  However, a sub-consensus growth of 1.4% in the US is enough to expect the Fed to cut rates again in the first half of 2020. Chair Powell should re-emphasise the data-dependent approach of the committee.

Other key data events for the US will be Headline CPI and Retail Sales. The expected outcome for retail sales to advance 0.3% MoM and headline inflation to increase by 0.2% MoM and similar 0.2% increase in core prices would lead to an unchanged annual rate at 2.3% – not enough to materially impact the US dollar.

EUR

Across the channel, a focus will be with the European Central Bank and Christine Lagarde's first at the helm. No change to policy is to be expected, with the eurozone's growth data having stabilised for now, especially with quantitative easing just being reintroduced this quarter. However, new ECB staff projections will be published with both CPI and growth projections for 2020 lowered (and 2022 projections newly revealed).

At the time of writing;

GBPUSD – Trading above 1.31 at 1.3159

GBPEUR – Trading above 1.18 at 1.1894

EURUSD – Trading at 1.1063

The figures are based on the live mid-market rate, correct as of 08:30 GMT on 09/12//2019, and are provided for indicative purposes only. Live mid-market rates are not available to consumers and are for informational purposes only. The rates we quote for money transfer can be selected via the page on our website ‘Live Money Transfer rates’.

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