LONDON: The pound and the euro gained against the dollar on Thursday after weak US economic data sent the greenback lower the previous day, as voting began in Britain and the French election neared.
Sterling was last up a whisker at $1.2757, after gaining 0.46% the previous day and touching a three-week high, while the euro was at $1.0801, up 0.1% after a gain of 0.4% on Wednesday and reaching a three-week top.
The pound is now up on the year against the dollar, making it the best performing G10 currency in 2024.
The dollar fell on softer-than-expected US economic data on Wednesday, including a weak services report and ADP employment report, depicting a slowing economy, after a rise in initial applications for unemployment benefits last week.
“The data is feeding expectations that maybe the labour market is weakening and the Fed will be able to cut rates later in the year,” said Jane Foley, head of FX strategy at Rabobank.
Markets now see nearly 50 basis points of Federal Reserve interest rate cuts in 2024, most likely starting with a 25-basis-point move in September and a second by year-end, bets which also brought down US Treasury yields.
The most important monthly US labour market data, non-farm payrolls, due on Friday, are expected to show an increase of 190,000 jobs in June after a rise of 272,000 in May, a Reuters poll of economists showed.
US markets are closed on Thursday for the July 4 holiday. British voters began to go to the polls on Thursday and look set to elect Labour Party leader Keir Starmer as the next prime minister, sweeping Rishi Sunak’s Conservatives out of office after 14 often turbulent years.
Foley attributed two main reasons for the limited market reaction to the calling of elections and campaigning drama.
“Firstly, Labour has been consistently above (the Conservatives) in opinion polls for some time, so there has been no shock,” she said.
“The second reason is Keir Starmer and Rachel Reeves have done quite a good job at convincing investors and the electorate that they have moved the party into the centre ground.” Reeves is the Labour Party’s finance policy chief.
Analysts also pointed to more uncertainty about the French elections, with a run-off set for Sunday.
Market nerves have eased somewhat and the closely watched gap between German and French 10-year yields has narrowed to less than 70 basis points having been above 80 bps ahead of the first round of voting last week.
Francesco Pesole, FX strategist at ING, said this was due to numerous centre and left-wing candidates dropping out of three-way runoffs to curb prospects for Marine Le Pen’s right-wing National Rally party.
“This raises the chances of a hung parliament, which appears a more desirable outcome for markets as it limits the chances of aggressive spending manoeuvres,” he said.
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