Global Themes

  •  Brexit progress on the way?
  • Euro shaky as Italian politics drags on
  • North Korea meeting put in doubt

GBP

Brexit progress on the way? 

President of the European Council Donald Tusk will meet with Prime Minister Theresa May ahead of the all-important European Union (EU) summit next month. It is rumoured that Theresa May and the UK government will tell the EU it is prepared to stay tied to the customs union beyond 2021. The PM met with her Brexit cabinet earlier this week to try and reach an agreement on the approaches to the Irish border and the customs union.

It has been reported that Boris Johnson, the Foreign Secretary, and Michael Gove, the Environment Secretary, were not happy with the decision and were ‘outgunned’ during the meeting and only reluctantly accepted the plans (source: Daily Telegraph).

  • As a result of the story, the British Pound has gained against its peers and GBP/EUR reached a high €1.1463, and this was the 3rd consecutive day of gains for Sterling against the single currency. The dollar still seems to be too strong for Sterling to mount a serious charge; GBP/USD lifted from $1.3501 to $1.3568, however, it has since retreated back to $1.3530.


EURO

Euro shaky as Italian politics drags on 

The Euro slid back into the $1.17 territory against the US Dollar yesterday, hitting as low as $1.1761, as the Italian political situation continues to drag on. This is the first time we have seen levels this low since December 2017. The complications of the potential Italian coalition are seen as having the potential of disrupting the bloc and are subsequently weighing on the Euro (source: Reuters). There are talks that the 5 Star Movement and League party may approach the European Central Bank (ECB) and ask them to forgive €250 billion of debt.

Investors have been dumping European stocks with people opting for safer yielding products such as Italian Government bonds with the Italian 10-year continuing to rise. This current situation had been forecast by many as the worst-case scenario for Italy. Though both parties in negotiations are less aggressive in their anti-EU stance, with neither party currently pushing for the country to leave the bloc, we have seen political motivations change plenty of times.

  •  EUR/USD has extended its losses to over 5% in less than a month. No fundamental support for the Euro means we could see it weaken further with the next level of support possibly being around the $1.1550 mark. The sell-off could be exacerbated as traders were optimistic about the Euro appreciating at the beginning of the year due to expected policy normalisation; however, these positive bets are being unwound. GBP/EUR continues a slow crawl back towards the €1.15 handle but could face significant headwinds in any progression further, as this move will need to see some Sterling confidence as well.

USD

North Korea meeting put in doubt 

The proposed summit between US President Donald Trump and North Korean leader Kim Jong-un was thrown into doubt yesterday. A statement from North Korea threatened to pull out of the meeting, saying that the tone from the US suggested that the talks would be one sided. The statement read: "if the US is trying to drive us into a corner to force our unilateral nuclear abandonment, we will no longer be interested in such dialogue” (source: BBC).

The North has already stopped a scheduled meeting with South Korea, but the hopes are it will still go ahead, and that this has been done to try and soften some of the rhetoric used by the US. The growing tension between the US and North Korea was a factor in the weakening of the US Dollar at the start of 2018, and if the meeting doesn’t go ahead this could weigh on the dollar in June.

  • At the moment though the dollar continues from a position of strength. US 10-year Treasury yields hit 3.1% on Wednesday, the highest since July 2011, suggesting the dollar has a heavy level of safe haven appeal. Also this week we have seen market expectations for four US interest rate hikes in 2018 rise above 50% for the first time, though this has now eased to 43.8% (source: CME).

*The rates displayed by our free currency converter are neither "buy" nor "sell" rates, but interbank rates, the wholesale exchange rates between banks. Interbank rates don’t include the spreads, handling fees, and other charges that may be assessed by foreign exchange providers. Please note that, as such, these rates are provided for indicative purposes only. Prior to booking a transaction, Western Union Business Solutions will advise you of the actual rate then available for a particular currency transaction.

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