Pound receives pummelling –
No hike expected until after EU vote.
Pound hits yearly low vs. Euro –
Euro benefits from risk aversion flows.
‘Cable’ at new five-year low –
Down two cents.
GBP/CAD strikes monthly high –
Crude oil at 12-year low below $30 a barrel.
Sterling
Sterling suffered significant losses on Friday as traders continued to speculate over the timing of Britain’s in/out EU referendum. Data from the options market shows that investors are rushing to insure against volatile Sterling swings between six and nine months from now, suggesting that analysts are preparing for the referendum in the third quarter of the year. Traders are worried that economic activity could slow in the build-up to the vote, as businesses hold back on investment due to uncertainty surrounding the result. The Pound is also coming under pressure because it is now generally accepted that the Bank of England will not begin its tightening cycle until after the EU vote.
Euro
The Pound to Euro exchange rate weakened by around two cents on Friday to strike a new one-year low as negative BoE rate hike sentiment and EU ‘Brexit’ fears weighed on demand.
The Eurozone’s trade surplus widened from €20.1 billion to €23.6 billion in November thanks to a 6% rise in exports, which outstripped a 5% expansion in imports, it was reported on Friday
Sell offs in emerging markets also contributed to GBP/EUR’s losses as risk aversion caused traders to close riskier positions taken out with cheap Eurozone loans. This ‘portfolio balance channel effect’ bolsters the value of the single currency as investors buy back into the Euro.
US Dollar
The Pound plunged nearly two cents against the US Dollar on Friday to reach a fresh five-and-a-half-year low. Risk aversion trends boosted the safe have ‘Greenback’, as did the Federal Reserve’s positive rate outlook, while dovish BoE bets and ‘Brexit’ fears significantly reduce d the appeal of the Pound.
Data out of the United States actually came in underwhelmingly on Friday but it was not enough to halt GBP/USD’s recent plummet. US retail sales declined -0.1% in December, disappointing forecasts of no change as the seasonal clothing, automobile, electronics and food sectors all experienced soft sales figures. US industrial production shrank -0.4%, manufacturing was down -0.1% and business inventories contracted -0.2%.
Canadian Dollar
The Pound to Canadian Dollar exchange rate struck a monthly high on Friday as investors reacted to news that crude oil had traded at less than $30 a barrel for the majority of the day. At one point crude was down -5% on the day as Russian energy minister Alexander Novak noted that it would ‘not be efficient’ for Russia to cut output in an attempt to drive prices higher. The latest leg of the oil plunge hurt the commodity-sensitive ‘Loonie’ and helped Sterling register an 80-pip gain.
Australian Dollar
Sterling appreciated by around 150 pips against the Australian Dollar on Friday as sell-offs in the Chinese stock market prompted another round of risk aversion.
The Shanghai Composite Index shed -3.6% on Friday, which spooked markets and weighed on the ‘Aussie’ as speculative investors bet that Chinese demand for Australian exports would weaken this year.
New Zealand Dollar
GBP/NZD touched a new monthly high on Friday as investors’ showed little appetite for riskier assets such as the New Zealand Dollar. However, the ‘Kiwi’ recovered slightly during the afternoon as traders bet that Australia would be hit harder than New Zealand by the slowdown in China.
There is no significant data due for release today.