The British Pound rose sharply on Tuesday as political uncertainty in France and geopolitical risks have been updated with statements of the British Prime Minister Therese May to hold early elections this year. Such an unexpected step will allow the Conservative Party to grab more power to their hands and thus strengthen their political position in the negotiations for the withdrawal from the EU. Confidence in the victory is supported by the lead of 20 points in the nearest opposition, but the probability of deviation from the general outline of Brexit allowed to revive bullish sentiment on the Pound, pushing it to the level of 1.2650. The British blue chip index FTSE 100 collapsed by more than 1.5% due to the strengthening of sterling, the largest losses were suffered by the mining companies. The EUR/GBP pair, sensitive to the Brexit-related news, rose but then fell sharply from 0.8508 to 0.8428, thus losing about 1%.
The British currency can also be affected by the elections in France, where the failure of Le Pen will mean the strengthening of the European Union position in general, and therefore increase the likelihood of stringent negotiations and fewer compromises with Britain. In the short term, the Pound is likely to take a course of decline, waiting for the vote results in the range of 1.25-1.26.
The European stock and debt market are declining as the cost of hedging against the risks of elections in France are growing, while the gap between candidates leave the outcome of the vote very unpredictable. According to the IPSOS/Sopra Steria poll published on Tuesday, the first round of voting Emmanuel Macron and the national front of Le Pen divided by half 44% of respondents, Francois Fillon – 20%, ultra-left candidate Melenchon – 19.5%. Like Le Pen, Jean-Luc Melenchon also represents an unfriendly outcome for the markets, as his promises include a referendum on France’s withdrawal from the EU.
The Dollar gave up a foothold for growth at the level of 100, as investors reduce bullish positions due to the deterioration of the prospects for a monetary restriction at the FED summer meeting. Markets are concerned that the negative trend in the economy, traced in recent data, may gain momentum, impacting the rhetoric of the FED, as well as the policy of the US government. The Dollar index, lost 0.28% trading at the level of 99.90.
On Tuesday, the Dollar remained close to a five-month low against the Yen after the US Treasury Secretary Stephen Mnuchin made a statement on Dollar strength. However, the continuing geopolitical tensions limits the growth of the Dollar against the safe haven currency.
The pair USD/JPY remained stable near 108.92 after falling on Monday to a five-month low of 108.12, amid concerns about North Korea and upcoming presidential elections in France.
In an interview with The Financial Times, Mnuchin said that he agrees with Donald Trump’s opinion that in the short term, a strong Dollar has a negative impact on US exports. However, in the long term, he sees advantages in a strong US currency.