he overwhelming sigh of relief in Europe at the avoidance of a Marine Le Pen electoral victory failed to translate into further gains for the single currency, even though her defeat of over 20% was larger than almost all of the opinion polls had predicted. With the threat of a divided Europe temporarily abated the Euro may consolidate over the next few sessions before attention turns back to monetary policy stances across both sides of the Atlantic.

Sterling continued to trade just shy of the physiological 1.30 level against the US Dollar as attention turns to this week’s Bank of England meeting. With a strong showing for Theresa May’s Conservative Party now effectively fully priced in, Sterling could continue to trade around current levels in the days ahead, absent a significant development on the Brexit front or shift in tone from the Bank of England.

Meanwhile, the US Dollar clawed back some gains against its major peers, having fallen to its lowest level since November. Investors have been firmly focused on political developments of late and when focus inevitably shifts back to monetary policy we could see the Dollar retrace some of its lost ground. Financial markets are currently fully pricing in another interest rate hike by the Federal Reserve at its next meeting in June. Barring a massive miss at the May labour report, we see this as an almost nailed on certainty.

Major currencies by detail

GBP

In the absence of economic data, the latest polls ahead of next month’s General Election are beginning to take on added importance. Yesterday’s ISM poll gave the Conservatives a comfortable 49% lead to Labour’s 27%. With a Tory victory heavily priced in, the effect of the election on the Pound will be the magnitude of the win, rather than the actual victory itself.

The main draw for Sterling traders this week will undoubtedly be the Bank of England’s monetary policy meeting and quarterly inflation report on Thursday. Following Kristin Forbes’ lone dissent at the most recent meeting in March investors will be waiting to see whether any other MPC members join her call for higher rates. The actual forward guidance itself is unlikely to change too much, although the BoE could issue a modest downgrade to its growth forecasts following the fairly soft growth data released in the first quarter.

EUR

The Euro slipped by almost one percent against the US Dollar during London and Asian trading on Monday, despite Macron storming to a comfortable election victory on Sunday evening. With the election now done and dusted we’re likely to see attention turn back to economic prospects within the currency bloc, and the expected path of future policy from the ECB.

On the data front yesterday, the monthly confidence data from Sentix far exceeded expectations, rising to 27.4 from 23.9. German industrial production and trade data will be released this morning.

USD

Historically dovish Fed member James Bullard claimed yesterday that the drop in inflation expectations in the US were a cause for concern, with data not justifying continued interest rate hikes by the central bank. It’s worth noting that Bullard is currently a non-voting member of the FOMC, and the Dollar was barely moved by his comments.

Federal Reserve members Rosengren and Kaplan could shift the Dollar when they both speak this evening. Retail sales and inflation numbers on Friday will be the major announcements in the US this week.