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Every Loser Wins

Divisions in U.K. set to dominate.

 

There is no future for a minority Government in the U.K. Goodwill is necessary and that is in very short supply with a great deal of antipathy between the main players.

 

The “alliance” between the Conservatives and the Democratic Unionists (DUP) is nothing new. The DUP tends to vote with the Tories in parliament having common ground on most issues.

 

Uncertainty is set to remain the key driver of FX markets for a while yet as Theresa May sets about forming a Government, passing a Queen’s speech and Budget. That is to say nothing of Brexit. In an ever so perfectly timed yet totally gloating manner, Angela Merkel declared that the EU is ready for negotiations to begin and saw no reason for a delay.

 

Sterling has performed reasonably well. Analysts have been “picking at the bones” of its fall then marginal recovery.

 

The most common reason given is the possibility of the U.K. accepting a “softer” Brexit where concessions to guarantee access to the single market are given leading to a smoother path. That is going to bring with it a major financial consideration which has been strongly denied so far.

 

May facing harsh criticism.

 

The Sunday newspapers in the U.K. were almost uniformly critical of the campaign fought by the Conservatives and the blame has been laid firmly at the door of the Prime Minister.

 

She has moved quickly (probably under instruction) to remove her two most senior advisors. Her new cabinet reflects a determination to continue in her job but there is significant doubt if she will be allowed to fight another election.

 

Can May survive? It is not likely but she is not even the biggest loser in this election. Neither is Corbyn the biggest winner! Those two titles reside “north of the border”. The Scottish nationalists lost seats and their independence mantra is shot to pieces. Nicola Sturgeon their leader is wounded. Mortally? Who knows?

 

On the contrary, the leader of the Conservative Party in Scotland, Ruth Davidson is riding a wave of popularity that must be the envy of her Westminster colleagues.

 

Senior Conservatives have recognized the need for consolidation. They are prepared to accept the election result as a wakeup call. Despite the performance of the Labour Party, its leader Jeremy Corbyn is seen as an unlikely Prime Minister.

 

But it’s not all politics.

 

This week we have important data and interest rate decisions on both sides of the Atlantic.

 

In the U.K. Mark Carney, the BoE Governor faces a Parliamentary committee to explain why inflation is nearing 3% when there is a target of 2%. He then will chair an MPC meeting which should be a reasonably simple affair. No change to monetary policy is possible in the current political climate. Inflation data is also released and an unchanged read of 2.7% is the best that can be expected.

 

Across the Atlantic, Janet Yellen chairs the FOMC meeting. It is ironic that President Trump has been calling for a delay in changes in Monetary Policy yet his only slightly damaged reputation following Michael Comey’s testimony last week means that conditions are right for a hike.

 

Currencies doing what currencies do.

 

Bid and offers, support and resistance, commercial buyers commercial sellers. Despite the market fearing a “chicken licken” scenario where the sky is falling, traders have, surprisingly, preferred to take a more considered view.

 

Sterling fell on the release of the exit poll but quickly made a low then has recovered a little. The Euro has recovered from a fall following Trump’s “escape” and is now back above 1.1200. Macron’s performance in the French Parliamentary Election has helped.

 

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