Global Themes

Sterling responded with a strong rally to news that Britain’s prime minister called for early elections. The pound soared 1 percent to 10-week highs after Theresa May announced a surprise decision to call for an early general election on June 8. Mrs. May made the calculated decision in a bid to lessen political division at home in the hope of fostering unity. The Conservative leader also hopes the early vote will strengthen her hand at the Brexit negotiating table with her EU counterparts. The pound rallied as markets seem to like the prime minister’s chances at emerging with a stronger mandate. However, the potential for Brexit to lead to another change in U.K. premiership could limit upside for the British currency. As for the U.S. dollar, it remained generally on the defensive as elevated global tensions kept U.S. Treasury yields anchored. Mostly weaker world stocks and commodities allowed the buck to gain a foothold against the Aussie, kiwi and loonie.

EUR

The euro rode shotgun to the rallying pound which lifted the single currency to two-week peaks against the dollar. The pound’s sharp advance helped lift other European currencies, including the Swiss franc, against the vulnerable greenback. The euro’s resilience in the facing of daunting political risk ahead of France’s first round vote on Sunday suggests the market likes the chances of centrist Emmanuel Macron or conservative Francois Fillon winning the election. But the potential for one of the extreme right (Marine Le Pen) or left (Jean-Luc Melenchon) candidates to pull off a shock win should limit upside traction for the single currency.

CAD

The Canadian dollar slipped to one-week lows as global tensions and weaker oil weighed sentiment toward commodity-based currencies. The loonie also appears to be consolidating a rally that had lifted it to six-week highs as caution takes hold ahead of critical Canadian inflation data on Friday that’s forecast to show some moderation in price pressures, a scenario that would validate the Bank of Canada’s warnings of ‘significant uncertainties’ ahead.

USD

A stampede into the pound trampled over the vulnerable dollar which saw the U.S. currency fall to more than two-week lows against a broad basket of currencies. Persistent tensions around the world have weighed on the dollar as the flight to safer assets, like Treasury bonds, puts downward pressure on yields, dulling the dollar’s allure. Meanwhile, softer U.S. data on retail spending and inflation have reinforced expectations the economy hit a soft patch in the first quarter. Tepid data reduce the likelihood of the Fed raising borrowing rates at a coming meeting, weighing on the dollar. Still, odds of a June rate hike remain close to 50 percent.

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