3 Things - 12/13/19 - The UK And Israel Election News And USD Sliding After Fed Comments
December 13, 2019
Happy Friday! It's general election mania… the UK finally made its decision between Corbyn and BoJo and the Israelis are heading to the polls for another stab at choosing a leader.
Did You Know... The Ancient Greeks had the first election in approximately 508 B.C. (almost as far back as when Brexit started). The Greeks held negative elections meaning candidates that received more than 6000 negative votes would be ostracized or exiled. I wonder how many politicians would be in power today if that was still the case?
3 Things That Happened This Week
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BoJo Bags A Big Win
The votes are in for what was the UK’s 3rd election in four years and it was a landslide victory for Boris Johnson and his Conservative party. Winning a huge 364 of the constituencies means a conservative majority of 79, with one seat still to confirm, making Boris’ victory the largest one since Maggie Thatcher’s win in 1987. Jeremy Corbyn lead his Labour party to a paltry 203 seats. The worst election result in 84 years.
What a Conservative win of this magnitude actually means:
Boris can use his force - The avoidance of a hung parliament significantly increases his ability to negotiate a “smooth” Brexit, more than three years after it began.
Five more years of BoJo - with a majority like this the Conservatives can remain in power without the threat of another general election.
Free Trade in three Years - Boris expects 80% of the UK to be covered under free trade agreements, prioritizing deals with the USA, Australia, New Zealand and Japan.
The clock is ticking - Boris has a year to get things sorted, Michel Barnier, the EU’s chief Brexit negotiator said this was unlikely. But the general feeling in Europe is positive after a decisive victory.
They will never take our freedom! - The SNP won 48 of the 59 possible Scottish constituencies. This is certainly going to create a headache for Boris who really doesn’t need the distraction of another Scottish Referendum.
Labour and Lib Dem on the hunt for new leaders - The Lib Dems and Jo Swinson had a terrible night as she failed to hold onto her own constituency. Jeremy Corbyn won't be leading the Labour party into the next general election despite reclaiming his seat.
GBP jumped over 2% against the USD and surged through the key 1.20 level against EUR immediately as the exit polls came in last night. Some analysts were predicting cable to go as low as 1.28 on possibilities of a hung parliament as recently as Wednesday. This morning the market opened at 1.3, the highest level since Sterling fell from highs of 1.43 in April 2018.
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Israel Head For A Third General Election This Year
Israel is heading into its third general election in the space of 12 months after both Prime Minister Netanyahu (Likud) and Benny Gantz (Blue and White) were unable to form a 61 seat majority in the country’s parliament, the Knesset.
What happened in the other elections:
April 2019 general election - saw Likud and Blue and White tied on 35 seats each.
September 2019 general election - Blue and White gained a small advantage of 33, to Likud’s 32 seats
There were talks of the two main parties forming a coalition, but there is now a stalemate in these talks after Netanyahu was indicted on three substantial corruption cases. If Likud removed Netanyahu as their leader, then there could be the possibility of a coalition government, however, this does look very unlikely.
The ILS continues to fall against the EUR (down 1.6% in the last 3 weeks), continuing a one month trend. The ILS has basically held steady against the USD for the last month but exhibits a long term depreciation
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FED Concerns About Inflation And Global Development Weigh On The USD
The US Federal Reserve would like to see a move in inflation that is significant and persistent before it raises interest rates again - as inflation has stubbornly remained below target. That’s dovish for rates, which resulted in a small drop in the USD index Thursday. See below the DXY (dollar index) this week.
It’s possible that the FED may consider easing if the Dec 15th tariff or other trade news changes the economic outlook, but in all likelihood, it will remain on the sidelines for a long while.
The USD initially rebounded against the GBP Thursday to 1.31. The gains were short-lived as the Tory UK election win clawed its way back and more. The EUR has been slowly appreciating against the USD and is near a one month high of 1.1151 and it remained unaffected by the news in the UK.
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In Other News
4 Ways CFOs Can Use FX Risk Management To Grow Their Businesses
Despite the only certainty being uncertainty, it is the CFOs and their finance team’s job to manage their company's exposure to currency volatility, allowing their firms to continue to grow and prosper... READ MORE
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Currency Heat Map
Below is the heat map for the first week in December, showing the relative volatility between currencies. The redder the color, the higher the volatility.
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