French presidential election takes centre stage
Monday 11 April, 2022
Daily Currency UpdateWith UK data releases few and far between last week, focus was on the build up to the French elections. The pound remains under some pressure after slowing growth in the UK coupled with pressure on UK households from rising prices, making the Bank of England's path of tightening monetary policy a murky one. The anticipation remains in the markets that the UK's central bank will hike interest rates by 0.25% in their May meeting, however the path beyond this now remains uncertain, as stagflation starts taking hold in the UK.
Wednesday's UK CPI release could support the theory that the bank may need to rethink its strategy of tightening monetary policy by raising interest rates. With last month's UK CPI posting at 6.2%, a 30-year-high, the expectation is that this Wednesday could see a reading of 6.7%, with a possibility of CPI hitting 10% by the end of 2022. Under normal conditions, inflation would be dealt with by Andrew Bailey and the other Bank of England members hiking UK interest rates, but in this instance, this may send UK households into further disarray as the cost of mortgages increase during a time when energy and other price increases are putting major squeezes on UK households. Therefore, a further rise in UK CPI could be negative for the pound.
Key MoversThe euro managed only a brief gain on relief that the far right did not win the first round of French presidential elections. Current French leader Emmanuel Macron and far-right challenger Marine Le Pen qualified on Sunday's phase 1 of the elections, for what promises to be a tightly fought presidential election runoff in the April 24th decider. Opinion polls predict a very tight battle, with Macron just ahead, but only by a couple of percentage points. A Le Pen victory could send shockwaves through France and Europe in ways similar to Britain's vote in 2016 in the Brexit referendum, and the next week two weeks could see a volatile period for the euro as polls indicate who could win. A Le Pen victory may prove damaging for the EUR, not only from a perspective of uncertainty for the future political direction of France, but also the fact that she is a Euro sceptic, calling for France to leave the EU in the past.
Focus stays with the Eurozone this week, with Thursday's ECB policy-setting meeting. Market participants will be looking for guidance of future monetary policy, with Eurozone inflation running at a record high 7.5% and showing no signs of peaking. The European Central Bank has recently become more willing to discuss the idea of tightening monetary policy and raising interest rates, which proved beneficial for the euro in March. However, with the war in Ukraine, policymakers may not be willing to do too much to rock the boat during a time when the situation in Europe remains fragile. All in all, there is the prospect for significant volatility with the euro in the coming months, as uncertainty prevails on multiple fronts.
- GBP/USD: 1.2990 - 1.3120 ▲
- GBP/EUR: 1.1888 - 1.1965 ▼
- GBP/AUD: 1.7410 - 1.7635 ▼
- EUR/USD: 1.0880 - 1.0965 ▲