Article / 19 April 2017 at 7:00 GMT

Morning Markets: GBPUSD consolidates above 1.28

Managing editor, TradingFloor.com / Saxo Bank
Denmark

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Watchlist

  • Eurozone: Consumer Price Index (0900 GMT)

Sterling hit a five-month high against dollar at 1.2905 after Theresa May took the UK by surprise to call for a snap election on June 8. GBPUSD eventually consolidated above the 1.28 handle, some 250 pips north of the pre-open Tuesday. It was also a rip-roaring blast for sterling bulls against euro pressing EURGBP down to the 0.8350 area.

But, where the major global indices took geopolitical tensions over Syria and the Korean peninsula in their stride last week, May's snap election call had bulls running for cover as a near 2.5% plunge in the FTSE100 was followed by falls in the US and Asia. Only the Nikkei, benefitting from a wan yen, was able to go against the tide overnight. FTSE can anticipate another rough start Wednesday.

There was also a significant flight to US 10-year Treasuries overnight forcing the yield below 2.2% as a combination of the UK drama and some disappointing corporate earnings results for the likes of Goldman Sachs and IBM dampened sentiment.

Ongoing doubts as to the future of the so-called Trump trade also pervaded the mood stateside reflected in the expectation for a Federal Reserve rate rise in June slipping to 43%. Expectations had been at 60% earlier this month.

May is very likely to secure a big win on June 8 given the disarray that plagues the official opposition Labour Party under the rudderless leadership of Jeremy Corbyn but the more interesting development could be what happens to the votes of those who formed the 'remain' camp in 2016. May hopes to unite the country ahead of Brexit taks but a significant surge for the Liberal Party in particular, which has pledged to keep the UK in the EU, will demonstrate that fractured Britain remains as divided as ever. A fresh election may do little to heal the wounds.

It all adds up to a summer of turmoil in Europe stretching through the potentially market-shaking French presidential elections, the effective UK 'referendum' on the referendum, and the German elections in September. Will we be any wiser at the end of that lot?

Market signals

Asian session

  • Asian markets fell on Wednesday morning following Wall Street's negative close
  • Investors remain cautious amid US-North Korea tension and ahead of the French elections
  • The Nikkei fell 0.18% in morning trade, with the S&P/ASX 200 down 0.43%
  • World economic growth should hit 3.5% in 2017, says IMF chief economist
  • Troubled giant Toshiba is looking at spinning off its infrastructure business
  • The mood is tense in Jakarta in the run-off election for governor
  • Business has mixed reaction to a tightening of Australia's 457 visa for skilled workers
  • Annual growth of Australia's luxury vehicle sales has fallen to four-year lows
  • Prices rose a better-than-expected 3.1% at the Global Dairy Trade auction, giving NZD a lift

Forex ahead

  • GBP was at $1.2845 after rising as high as $1.2908 after May's election call
  • The dollar edged up to  ¥108.58
  • The euro edged down slightly to $1.0719 after three-week highs overnight
  • The slide in iron ore weighed on the Australian dollar, which fell 0.4% to $0.7528

From the Floor

Four-way fight. "It's the first time in French history that you have four candidates neck-and-neck," says Dembik.

May snaps FTSE. "FTSE100 broke down through some key areas — there is a very high correlation to sterling," says Garnry.

Get all the latest from Saxo Bank's trading floors in From the Floor, within the hour.

In opinion

1...2...3
Political risk has jumped significantly in the UK following the surprise decision to hold an election, and equity markets have decided to sell first and ask questions later, says James Picerno

Sterling bonus
Sterling could be one of the big beneficiaries of Theresa May's snap election call as she looks to get serious ahead of the Brexit negotiations, says Steen Jakobsen.   

May's gamble
Conservatives have a 21-point lead over Labour, and May is hoping a solid victory in a June 8 election could help silence her critics, writes the team at Saxo APAC Sales Trading.

Hand that snaps
UK prime minister Theresa May hopes to strengthen her hand in the Brexit talks by consolidating her power base in a snap election in June. It probably won't work, says Martin O'Rourke

Euro surprise
The euro's resilience has been one of the surprises of the French presidential election campaign and a victory for Emmanuel Macron could see EURUSD up to 1.1200, writes Steen Jakobsen.

Take a breather
After a whirlwind melt up towards $1,300/oz over the Easter break, gold could be in for a short-term retracement but the bias is still bullish, writes Ole Hansen.

Europe divided
While the four-way race offers up some tantalising prospects for this Sunday's first round of the French presidential election, a run off between Emmanuel Macron and Marine Le Pen is still the most likely outcome, says Christopher Dembik.
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London back in the limelight again. Photo: Shutterstock

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