Market News & Insights
28 April 2015

GBP Shrugs Off Pre-Election Jitters

EUR/USD 1.0875
GBP/USD 1.5235
GBP/EUR 1.4011(0.7138)
EUR/CHF 1.0404
GBP/CHF 1.4575
GBP/AUD 1.9330

A notable outperformer in yesterday’s trade was GBPUSD which has rallied above 1.5200 . The break above the1.5000 area and the pre election range has seen the move higher accelerate with sterling showing little signs of weakness ahead of the run in to the polls for the general elections. GBP’s advance has been aided by heavy selling in USD across the board which now sees EURUSD looking to test towards the top of its recent range above 1.1000, while AUDUSD is also looking to stretch to three month highs just short of the pivotal .8000 level. Risk appetite in the US was somewhat more subdued with equity markets closing in the red, while overnight the Australasian session also saw modest losses posted across most indices with the exception of the Nikkei. European indices have followed the somewhat risk adverse tone thus far this morning with major indices opening in the red.

Given the UK general election still remain too close to call, which means an uncertain future for GBP the rally in GBPUSD has been surprising. Negative news flow from the US has not aided the greenback thus far but we have also seen the UK economy continue to show signs of consistent growth with only Inflation causing any major concerns in the last couple of months. This brings us to a printing of the first quarter GDP print, this first estimate is due to show GDP grew at .5% through Q1, resulting in a slowdown in year on year GDP from 3% at the end of 2014 to 2.6% year on year through Q1. Leading data indicators through March have already highlighted some outperformance in manufacturing and services and this may well be enough to help GDP beat consensus forecasts. In the short term this will almost certainly be positive for GBP as we see interest rate hike talks begin to focus on 2015 once more.

The Euro was firmer through yesterday’s session, Greek equity markets traded higher and bond yields declined following news the Greek Finance minister would be side-lined for further discussions. The embattled Varoufakis has made no secret of his love of “Game Theory” however his approach to negations has added to the instability around discussions and made him plenty of enemies both in Europe and apparently now, within Greece. There is additional hope now a compromise can be made which will enable Greece to secure further funding but necessary reforms will still have to be made by the Greek government, and approved by Eurogroup leader/IMF. The economic calendar remains quiet for the Euro today so news flow around Greece will be closely watched but for now EURUSD is looking higher, while the single currency is under selling pressure against the pound.

The USD index is approaching key support after a run of weak data which has finally seen expectations for a June rate hike diminish. Yesterday’s reports from Markit on services and the composite PMI both missed expectations to the downside and we have seen a large number of US banks mark down their GDP expectation for Q1 from the US. This appears to be a case of deja vu all over again as we were in a very similar position this time last year, when expectations of a Fed taper and rate hike in Mid 2014 were suddenly pushed well down the curve after a dismal Q1 performance, with expectations for annualised GDP to come in at 1% now very likely. Tomorrow’s FOMC release will provide us a little more colour on this and while we have not yet seen a confirmation on a full breakdown in the USD, should the USD index break key support, accelerated greenback selling is likely. This afternoon we look towards Consumer Confidence data and case Shiller composite reports (both expected to have improved).