The dollar index gains 0.2% in early European trading. The dollar index had been put under pressure over the past two weeks due to insecurities associated with the Trump administration. However, it has gained around 0.2% because of political issues in Europe and the UK general election.
The Euro dropped 0.25% to $1.1135 because of reduced inflation in Spain and parts of Germany. It was also affected by a statement by Mario Draghi, head of the European Central Bank, that emergency stimulus would continue.
However, of more significance were Italy’s elections. There have been indications that the elections would take place earlier than expected – perhaps even in September. Elections in Euro-zone countries can have quite a significant effect on the Euro, tending to hold it back against other major currencies.
The situation in Italy resulted in a fall for Italian blue chip shares and Italian banks Tuesday morning. French shares dropped 1% as many investors turned to the Japanese. The yen gained an approximate 0.6% vs. the euro, and 0.3% against the dollar.
UK politics is having an effect on the markets, particularly the roughly 5 – 6% reduction of Theresa May’s lead against the Labour party for the upcoming general Election. If she does not achieve the originally expected landslide victory for her party, she may have to concede more to those wanting a hard Brexit rather than a soft option.
Her lead has now reached a point where Labour might even win, which would significantly affect markets and the value of sterling. Jeremy Corbyn would likely have to borrow and spend more on public finances to achieve his manifesto pledges. However, this result would also almost inevitably lead to a softer Brexit which would suit the markets better.
By 0740 GMT Tuesday morning, sterling has gained from Friday’s $1.2775 three-week low to $1.2831. The dollar index gains may or may not continue. Much will depend of the respective politics of the USA, UK and Europe.
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