Wait and See

Polls about to be proven right or wrong

Politics and particularly elections have become powered by opinion polls in recent times despite those polls becoming less and less reliable. Cameron, Brexit and Trump were three major events that polls were unable to predict and this has created an air of disbelief.

The polls for the U.K. General Election have been showing a gradual “whittling away” of the Conservative party’s lead since the election was announced on April 22nd.

The problem most commentators face is marrying this fall in Conservative popularity to any event or set of election pledges. The stances of the major parties on every major issue are “set in stone”. However, the one area new to the electorate is Brexit but even on that issue there is a conflict of fact over perception.

Apparently support for Brexit has risen since the referendum and 62% would now vote leave. It is the nature of the departure from the EU where the doubts appear. Deal or no deal, hard or soft Brexit, negotiation or stony silence? The wait is almost over and the pound has entered a consolidation until fact overtakes rumour.

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ECB meeting fuels anticipation and expectation

Tomorrow the Governing Council of the European Central Bank are planning a little road trip. Why meet in boring Frankfurt when you can decamp all twenty members to Riga, Latvia. The cost of this little jaunt is clearly of little significance.

The outcome of tomorrow’s meeting is taking on more significance though. There is expectation building that the time is fast approaching when the ECB will need to become more proactive in its management of monetary policy.

In his recent speeches Mario Draghi has started to target inflation as the focus of his concern. His problem is the exact opposite of that facing the Bank of England in that inflation is benign despite other indicators starting to turn upwards.

The one major difference is the currency. The pound has suffered a major fall over the last year leading to “imported inflation” whereas the Euro has been on a gradual upward path since it made a low in December/January.

Observers feel the time has come for the ECB to allow the economy to stand on its own two feet by removing the “additional measures” it was so reluctant to adopt in the first place.

Currencies in “well-trod” ranges

The Euro is trading close to six month highs against the dollar. Yesterday it reached 1.1285 and has now made similar highs on three consecutive days. Some correction has been seen against Sterling although the single currency is well supported around 0.8700.

In a perfect world, tomorrows events will provide a little clarity; with Trump finally having to “face up” to his actions over James Comey, a new Government in the U.K. and the ECB providing guidance on rates.

Risk aversion is driving the dollar lower against the Jpy. It has reached a low of 109.33, a level not seen since mid-April as trader’s express concerns over political events in Washington.

The Australian dollar rallied overnight as GDP data was above market expectation. The economy grew by 1.7% YoY in the first quarter beating an expectation of a 1.5% rise. In keeping with other developed economies, the rate of growth has slowed a little but there are continued positive signs for the Australian economy.

The currency rose to a one month high of 0.7546. The Central Bank Governor has said that although it is too soon to consider a rate hike, conditions are sufficiently stable to say that rates have bottomed.