June 24, 2024

“Elections in the UK and France and inflation in the US are the key themes in FX this week. The first of two French votes comes this Sunday while the UK enters its final full week of campaigning, and markets are gearing up for a core PCE print on Friday that could revive the possibility of a September rate cut.”

Tim Hallinan – Trading Director

Main Headlines

According to the latest poll in France, Marine Le Pen’s far-right National Rally continues to gain vote share, with one released yesterday putting it at 35.5%, followed by the left-wing NPF coalition at 29.5% and Macron’s alliance at 19.5%. Significantly higher turnout rate estimates compared to the previous election – 60% or more – suggest increased importance ahead of the first round of votes on Sunday, with the French interior minister arguing that there is an increased risk of violence.

In a repeat poll conducted by Ipsos for the FT, one third of those who said that they would vote for the Conservatives back in January have now switched to supporting other parties ahead of the UK election next week. 14% of previous Tory voters switched to either Reform or Labour, while 7% were now undecided and 9% preferred not to cast a vote at all.

GBP

The pound has started the week on a firmer footing but remains around a five-week low after a dovish Bank of England decision revived bets on an August rate cut last Thursday. The data on Friday was mixed – while retail sales bounced back to 2.9%, some renewed growth divergence versus the US in the PMIs turned the session into a net negative for sterling. The implied UK economic growth rate slipped towards stagnation as the composite PMI figure slipped from 52.9 to 51.3, although this was in part driven by election uncertainty. Today’s diary is light beyond some industrial order expectations, which is unlikely to have a material impact in FX, and the headlines this week are likely to be dominated by the final campaigning and polls ahead of next Thursday’s general election, where the question is increasingly becoming about the size of Labour’s majority, and how much Reform is able to gain before the UK heads to the booths.

EUR

The French snap election remains the dominant concern for the euro ahead of Sunday’s first voting round. Friday’s PMIs were poor and only narrowly avoided steering towards economic contraction, prompting some to wonder whether the eurozone’s rebound has already peaked. Weak demand and political uncertainty in France were noted as hitting activity in June. Le Pen’s RN and the NPF both continue to gain ground in the polls, keeping French bond risk premiums around their highest in 12 years, although the RN finance chief has sought to ease concerns about the potential for significantly high budget deficits, telling Reuters that he would stick to EU fiscal rules. The German ifo business survey is the biggest data point today, where we may see some of these topics filter through.

USD

The dollar has given up a good proportion of its post-PMI gains from last Friday this morning, as markets position for a cooler core PCE inflation print at the end of this week. Booming business activity bolstered forecasts for strong growth in Q2, capping off the dollar’s third consecutive week of gains, as foreign central banks have become more dovish and the euro has been hit by political turmoil. This week is all about Friday’s Fed-favoured inflation gauge after the CPI and PPI measures both came in softer than expected, with the consensus looking for the lowest month-on-month core PCE print since November at 0.1%, which should keep the Fed on track for eventual rate cuts in the autumn. USD/JPY is the pair to watch, and traders are on high alert for any further intervention from Tokyo, as we reapproach the 160 mark and officials ramp up verbal threats

Markets

Global equities pulled back in the final two days last week as the broad tech rally took a breather and Nvidia stock notched its first weekly loss in nine. Most major indices finished the week in the green, however, with the S&P 500, FTSE 100, and STOXX 600 all up around 0.5%.

Main Economic Events (All Times CET)

9:00am: Fed’s Waller speaks
10:00am: German ifo Business Climate
12:00pm: CBI Industrial Order Expectations
7:45pm: BoC’s Macklem speaks

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