DailyFX European Market Wrap: UK General Election Shocks Sterling


The UK General election threw up a shock early Friday as UK PM Theresa May’s attempt to build a larger majority in the House of Commons backfired, resulting in a loss of seats and a hung Parliament. PM May later reached a deal with the Democratic Unionist Party, allowing her to continue running the country, but markets now fear that upcoming Brexit negotiations will be far more difficult, while the Prime Minister’s reputation has also taken a heavy blow.

The Bank of England will have a chance to air their feelings over the election on Thursday when they announce their latest monetary policy measures – all expected unchanged from the prior meeting. Governor Mark Carney will also have to wrestle with low growth – 0.2% in Q1 2017 – and rising inflation. Added to this stagnant, below inflation, wage growth could see consumers spending less, removing an important driver of the post-Brexit economy. The latest UK inflation data will be released on Tuesday.

In the US, Fed Chair Janet Yellen is expected to hike rates by 0.25% at their policy meeting on Wednesday, but again the subsequent commentary will be closely parsed for further clues on the strength of the economy. Expectations for a third rate hike in 2017 have ebbed and flowed lately and investors will want to see if the recent weakness in the US Dollar is justified or just a temporary measure.

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— Written by Katie Pilbeam, DailyFX

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