Sterling rallies as Tories maintain lead in polls

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2 December 2019


We closed a mixed week in G10 currency trading. Sterling was the winner, outperforming all major world currencies as markets make clear their preference for the expected electoral outcome in the UK, a Tory victory.

generally buoyant mood among investors means that safe-havens like the Yen underperformed. Finally, the euro traded in the tightest range in many years; no doubt the lack of action had something to do with the long Thanksgiving holiday in the US.

Special mention should be made of the continuing rout in Latin American currencies, which have been slammed over the past few months as political protests rock one country after another. The Colombian peso was the worst performer among major currencies worldwide last week.

The highlight of this week should be the US employment report out on Friday. Speeches by the ECB’s new President Lagarde and Coeure may move the common currency, while sterling will react mostly to polls on the upcoming general election.


Sterling trading continues to be driven almost entirely by news regarding the upcoming election, particularly in weeks such as the previous one with little other news of note.

The possibility of a repeat of the 2017 election, when Labour largely closed the gap in the last days of the campaign, seems to be receding this time around. The Tories are maintaining a double-digit lead for now, and betting markets are placing Corbyn’s chances of becoming Prime Minister at less than 5%. Macroeconomic news may just break through the political noise, as the key PMIs of business activity are released on Tuesday and Wednesday.


It is remarkable how little attention the flash inflation release got from markets last week. The critical core measure that strips out volatile food and energy components rose by a significant 0.2%. At 1.3% for the year, it is bumping up against the maximum that has held for the past three years. This is the critical input into ECB policymaking, and this upward surprise would seem to take any further ECB easing off the table for the time being.

We now look to retail sales and employment, out on Thursday to confirm the recent string of positive surprises from the Eurozone, which would send the euro higher.


The second-tier data out in the short Thanksgiving week mostly beat expectations, though not enough to meaningfully change forecasts.

This week we look forward to the ISM indices of business activity and, most importantly, the November payrolls report. The resolution of the General Motors strike will probably bring about a rebound in net jobs created, adding to the general improvement in mood in financial markets.