The U.S. Dollar is trading in choppy ranges after a weekend of mixed reaction to the UK snap election that has created such havoc for Prime Minister Theresa May. All eyes are on Britain as traders try to interpret what a hung parliament will mean exactly to the Brexit negotiations that initiate in a week.
The European lawmakers were not going to make things easy for PM May and now she has to worry about even maintaining her job. It is likely she will have a lifeline through minority parties and form a government, but it won’t be a strong coalition and it’s certain markets are losing faith in her.
No data out today for the U.S., but the week shall be crucial for dollar direction as the FOMC announces its much-expected hike on Wednesday. It is already priced-in that the Fed will increase rates, but the narrative thereafter is what concerns market participants the most. Sales and manufacturing gauges throughout the week will impact the overall story of potential greenback strength or argue that there are stagnant indicators keeping the Fed hesitant to hike after June.
The Euro picked up steam after Friday afternoon and remained afloat overnight following good news for the established European order in France and Italy. Elections to the national congress are going well for French President Emmanuel Macron after some seats gained by moderates. The final round will be next Sunday and we’ll see if Macron solidifies a helpful coalition in the legislature.
Meanwhile in Italy, the Five-Star Movement, the anti-Euro party, suffered momentum loss by failing to get enough votes to go to a second round of voting in very populated regions such as Genoa. No electoral reform was passed, which means a snap election is highly doubtful in Italy this year, thus lowering the political uncertainty of the Euro-bloc. We expect Euro to potentially flourish slightly this week.
The Pound remains vulnerable and fell another half percent because of the surprising results of the elections last week. The Prime Minister had to assign some hardcore Brexiteers to her cabinet, hoping to win the graces of highly upset Conservatives who are concerned Brexit negotiations are escaping their grasp.
May is still arduously working to build enough of a coalition to have a government, but the drama behind the election casts doubt on her influence. This week will be imperative for her to coordinate an ability to still rule, but Labour and even Liberal Democrats are set to have their say be heard. We see Pound trending downward the next few days as this all gets settled.