GBP
Sterling hit its weakest against the dollar since the aftermath of the UK’s
national elections yesterday, after a speech by The Queen set in motion a
referendum on the UK’s membership of the European Union. A EU referendum by the
end of 2017 is among a programme of new laws in the first Conservative Queen’s
Speech in nearly two decades. European head of FX strategy at Credit Agricole
(Adam Myers) stated that “Even though it’s likely that the UK wants to

GBP
Sterling hit its weakest against the dollar since the aftermath of the UK’s
national elections yesterday, after a speech by The Queen set in motion a
referendum on the UK’s membership of the European Union. A EU referendum by the
end of 2017 is among a programme of new laws in the first Conservative Queen’s
Speech in nearly two decades. European head of FX strategy at Credit Agricole
(Adam Myers) stated that “Even though it’s likely that the UK wants to
stay in (the EU), any political uncertainty is as good an excuse as any to
cause a bit of a squeeze or reversal in sterling positioning after what’s been
a strong run.”

Analysts have been flagging concerns about a possible British Exit of the EU.
Many say the risks to a UK economy, which relies on inflows of investment and
capital to fund its 100 billion-pound current account deficit, are greater now
than they were during the Scottish independence referendum in September
2014. 

EUR
The main issue concerning the strength of the EURO is the Greek
situation. According to a Goldman Sachs Strategist the main scenario that
is likely to occur between Greece and their lenders is that the deal will
ultimately end in a compromise from both sides with no Greek Exit and a period
that could witness missed payments. We saw recently that the Greek Prime
minister has said openly that Greece does not have the money to pay 300 million
euros to the IMF on June 5. Despite this Greek Finance Minister Yanis
Varoufakis expressed confidence a deal with lenders would be struck in time to
avoid default. Greek officials have been holding negotiations with Eurozone and
International Monetary Fund officials in Brussels for weeks now and
yesterday Greek Prime Minister Alexis Tsipras said the country is close to an
agreement with its international creditors over its rescue program. 

USD
Many central banks around the world are watching whether the US dollar can
regain momentum and help stimulate their slowing economies. Countries are
relying on weaker currencies to boost their growth prospects in the global low
interest rate environment. The US dollar has pulled back, hit by weak economic
numbers that have clouded the timing for when the US Federal Reserve may
finally start lifting borrowing rates. Unless the disturbed signs of a pick-up
in the US economy turn into something more sustainable, a further downward drift
in the world’s reserve currency stands to complicate policy for many central
banks. The USD has rallied strongly in recent sessions, with the dollar index
rising a further 1.1 per cent earlier this week (Up 4.2 per cent in the past
seven trading days). The dollar rose against most major currencies yesterday,
hitting an eight-year peak against the yen on expectations the Federal Reserve
would raise interest rates later this year due to signs the U.S. economy is
recovering from an unstable first quarter. 

Key Announcements
GBP – 9:30 – Second Estimate of UK’s Gross Domestic Product (QoQ) Expected
to rise to 0.4% from 0.3%
USD – 13:30 – Unemployment claims
All – All Day – G7 Meetings

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