As if the British elections alone weren't enough to set the currency market in motion, the European Central Bank (ECB) is also meeting today and there is a hearing with the recently fired FBI boss, James Comey.
Not only will the ECB board meet in Frankfurt, but the bank economists' new estimates of economic growth and inflation for this year and the next two years will also be released.
Should the inflation outlook deteriorate, that could be reason enough for the ECB to continue buying government and corporate bonds for longer. They can also choose to keep the official interest rate at 0 percent for longer. That could put downward pressure on the euro.
In the United States, there are indications that the ex-FBI boss will tell that President Trump has tried to influence him and the FBI in their investigation into Trump-Russia contacts (about the American elections). If it turns out that Comey was fired because he did not care about President Trump's wishes, that could lead to the start of the impeachment procedure for the president.
In short, the dollar could be having a really bad day.
Lead is dwindling
And then, of course, there are the British elections. Prime Minister Theresa May wrote it in the hope of a large majority in the British House of Commons (aka our House of Representatives). In this way, she hopes to gain more support for the Brexit negotiations with Brussels, which will start in less than 2 weeks.
Where it initially seemed that May would get a larger majority, the situation is now completely different. Recent interrogations show that she is still likely to win the election, but her majority in the House of Commons may be shrinking. After the announcement of the by-elections, May was still 20 points ahead of the Labor party. This has now shrunk to between 1 and 12 points.
A so-called "hung parliament" is now also possible. This is the case when no party has been able to obtain a majority. Then the British must form a coalition government. This could give investors the feeling that political instability is high in the coming years.
That is bad news for the British pound. Especially, because there is a good chance that May's party will disappear from the government. A coalition between the Workers' Party and small parties (such as the Scottish nationalists or the pro-European Liberal Democrats) would be much more likely.
Pound in the firing line
Following the announcement of the midterm elections and the prospect of a large majority for May's Conservative Party, the pound gained ground against the euro and dollar. However, with the outcome now uncertain, it wouldn't be surprising if the pound came under downward pressure.
For example, if May gets a smaller majority than she has now, there is a chance that she will enter the talks with Brussels with a straight leg. In addition, it will not shy away from even having those talks if Brussels continues to insist on compensation of approximately 100 billion euros. By adopting a rigid attitude, she ensures the support of the hardliners in her own party.
This so-called "hard Brexit" would further worsen relations between the EU and Great Britain, jeopardize British access to the European internal market and reduce the chance of a trade deal, certainly a quick one, after Brexit to almost zero. The pound was expected to suffer considerably.
la carte leave the EU
On the other hand, should May lose the election and the Labor Party win, the separation between London and Brussels could be smoother. That is slightly more favorable for the pound. However, the probability of such a scenario is not very high. "Brussels" is committed to making the separation as unattractive as possible for the British.
This is for fear that otherwise there would be the impression that other countries could also leave the EU, and then choose only those elements of European cooperation that the country in question wants. If such an á la carte exit from the EU seems possible, then the anti-EU parties in some other EU countries may gain popularity as a result.
Slowing down the pound's decline
What could hold back a possible decline in the pound are developments in Frankfurt at the ECB and the hearing in Washington. On election day, the pound remains stable against the euro, with the market apparently assuming Prime Minister May's Conservative party will win.
British polling stations close at 21 p.m. and the results are expected on Friday morning, 00 June. This also applies to a possible reaction from the EUR/GBP.