Snap Election Triggers Pound Volatility
- Some big currency movements this week were the result of news out of the United Kingdom, as pound sterling volatility has increased before the snap election scheduled for June 8.
- The Japanese yen continued to benefit from diminishing expectations that the Trump administration can implement fiscal stimulus.
- The U.S. dollar seems to have found some support against a basket of currencies at its current range, which is about even with its pre-election levels.
Big currency movements came this week, as sterling volatility has increased before the snap election in the United Kingdom on June 8th. The pound has borne the brunt of increasing market tensions from conflicting polls over the general election outcome. Just two weeks ago, the conservative party was expected to increase its majority in a landslide victory. Today, some polls suggest that the conservative party will actually shrink, resulting in a hung parliament. Markets do not like this prediction, as it undoubtedly results in more policy uncertainty as Britain heads into exit negotiations.
After rapidly appreciating following the election of President Trump, the dollar has faced many headwinds, and political uncertainty has continued to flow out of Washington and depress sentiment. The dollar has fallen more than six percent against a basket of currencies from its highest levels in December 2016, but the dollar seems to have found some support at its current range, which is about even with its pre-election levels. The outlook, however, remains uncertain. The diverging prospects for monetary policy remain supportive of the dollar, but they may not be able to outweigh economic improvements abroad.
Currency Movements Are Hard to Predict
Source: Bloomberg, 4/11/17–5/30/17. EUR/USD Spot Exchange Rate where the price of 1 euro is in U.S. dollars. The calculation is the one week percentage change in spot exchange rate where a negative value is the depreciation of the euro. JPY/USD Spot Exchange Rate–price of 1 Japanese yen in U.S. dollars. The calculation is the one week percentage change in spot exchange rate where a negative value is the depreciation of the JPY. The U.S. Dollar Index (USDX) indicates the general international value of the USD. The USDX does this by averaging the exchange rates between the USD and major world currencies. A negative value indicates a general depreciation of the dollar.
The information and opinions contained herein are for general information use only. MainStay Investments does not guarantee their accuracy or completeness, nor does MainStay Investments assume any liability for any loss that may result from the reliance by any person upon any such information or opinions. Such information and opinions are subject to change without notice, and are not intended as an offer or solicitation with respect to the purchase or sales of any security or as personalized investment advice. There can be no guarantee that any projection, forecast, or opinion in these materials will be realized. Past performance is no guarantee of future results.
All investments are subject to market risk, including possible loss of principal. Diversification cannot assure a profit or protect against loss in a declining market.
Securities distributed by NYLIFE Distributors LLC, 30 Hudson Street, Jersey City, NJ 07302, a wholly owned subsidiary of New York Life Insurance Company. NYLIFE Distributors LLC is a Member FINRA/SIPC.