This week was dominated by pivotal elections in the UK and France, both entering the final stages of their respective campaigns. The narratives were similar, with winners already earmarked, though the margin of victory remained a question. In the UK, Labour and Keir Starmer were tipped as heavy favourites, with the Conservatives suffering heavy losses following a tumultuous term under Rishi Sunak. This prediction proved accurate, with Labour winning 410 seats, securing a massive majority. Notably, 11 cabinet ministers, including former Prime Minister Liz Truss, Penny Mordaunt, Grant Shapps, and Gillian Keegan, lost their seats. This outcome opens the prospect of a Labour government with enough seats to pass policies through Parliament relatively easily. Meanwhile, Marine Le Pen will have to wait until Sunday to find out whether she has done enough to secure victory in France.
In terms of economic data, key releases in both the Eurozone and the US were observed this week. The week began on Monday with the release of the German preliminary CPI m/m, with forecasts predicting a slight upturn to 0.2%, up from 0.1% at the last reading. However, the CPI remained at 0.1%. Later that day, US ISM Manufacturing PMI figures were released, with forecasts predicting a push towards the key level of 50 after disappointing previous figures. This prediction was not met, as the final release came in at 48.5, still far from the key point of 50. Following this, optimism returned to the Pound, causing a slight sell-off of the USD.
On Tuesday, the wider release of CPI figures in the Eurozone was observed, with forecasts predicting a drop to 2.8% y/y from 2.9% at the last reading. Similar to the German figures, the CPI remained stable at 2.9%. However, the real market mover came from comments made by Jerome Powell at the ECB Forum in Sintra. With the US posting a number of disinflationary figures recently, it was perhaps no surprise that Powell took a more dovish tone, stating that he sees “significant progress” on inflation. This again caused a slight sell-off of the USD.
Wednesday was another challenging day for the US, with both ISM Services PMI, which came in below the key level of 50, and ADP Non-Farm employment data disappointing. Thursday was dominated by the UK election, and later today, further US jobs data releases are expected. Further poor results could see the Pound gain ground over the US Dollar heading into the weekend.
Next week, the US will once again be in focus, with movement likely surrounding Thursday’s CPI data release. Jerome Powell is also scheduled to testify twice regarding the Semi-Annual Monetary Policy Report, suggesting plenty of potential for market volatility.
