Good morning,
GBP: Sterling’s brief rally is over
The pound didn’t deserve to rally on Friday and came down the other side of the mountain yesterday afternoon once it became clear that the talks between the government and the Labour party had failed, and the UK will now officially take part in the European elections on May 23rd.
None of this is a surprise of course; Brexit is very much a game of everyone coming round to what is a very obvious outcome eventually. Where we go from here will depend on the results of the European elections in a little over a fortnight’s time; as we noted yesterday, the Brexit Party are leading in the most recent polls and the intransigence and lack of compromise could easily see their numbers swell.
Sterling could easily trade listlessly over the next fortnight although opinion polls will have their say. Brussels is largely shut down, waiting on the outcome of the European elections so Brexit is back on the ice and with it is sterling.
NZD: A one-and-done cut
The Reserve Bank of New Zealand chose to not mirror it’s Australian counterpart last night and decided to cut interest rates, sending the NZD to a six-month low. The kiwi dollar has recovered a little bit as the market chewed through the accompanying statement that gives the impression that the decision was a close one and that the jury is out on whether this is a one-and-done move or the beginning of a program of cuts.
We think that the former is more likely for now with a wider downturn in global economic prospects needed for more easing to become necessary. The RBNZ is currently only expecting to have rates cut once more in the next two years.
USD: Trade talks
Safe-haven bids for the US dollar have continued overnight as markets continue to worry over the latest round of danger to a trade agreement between the US and China. Chinese state media overnight said that the Chinese government would not make concessions to the US government in these latest negotiations. Vice Premier Liu He will arrive in Washington later today and trade talks will run until Friday. President Trump threatened increases in tariffs on $200bn worth of trade by the end of the week.
Have a great day.