Sterling
Sterling plummeted against its major trading peers when markets reopened for the week earlier this morning as traders reacted negatively to news that London Mayor Boris Johnson would be throwing his, somewhat significant, political support behind the ‘OUT’ campaign in the up and coming EU referendum.
British Prime Minister David Cameron announced last week that the vote on whether or not to leave the European Union would take place on June 23. The Pound initially rallied when the PM announced he had agreed a package of British specific reforms in return for campaigning to remain inside the 28-nation bloc. However, sentiment turned sour after Boris Johnson laid down the gauntlet and pledged his support for the ‘OUT’ camp, which includes prominent Tory MPs Ian Duncan Smith, Michael Gove, Chris Grayling, John Whittingdale, Theresa Villiers and Priti Patel.
Euro
On Friday it was announced that UK retail sales rallied 2.3% in January, smashing economists’ forecasts of 0.7% and boosting the appeal of the Pound.
Sterling was also supported by a £12.3 billion rise in self-assessment tax receipts in January, which made for an eight-year high monthly budget surplus of £11.2 billion. The robust data beat expectations but Chancellor George Osborne is unlikely to meet his deficit reduction target of -3.9% of GDP unless the deficit increases by less than £7 billion over the next two months. The chances of this appear slim seeing as the government need to borrow £14.8 billion during the same period last year.
The Pound to Euro exchange rate strengthened by around half a cent during the morning in reaction to the upbeat data set. However, GBP/EUR depreciated by around a cent when markets got a chance to react to London Mayor Boris Johnson’s decision to come out in opposition to the Prime Minister.
US Dollar
Sterling appreciated by around 75 pips against the US Dollar on Friday as strong UK data bolstered the appeal of the Pound. But ‘Cable’ plunged sharply at the beginning of this week’s session in reaction to Boris Johnson’s surprise announcement that he was in favour of a ‘Brexit’. The London Mayor holds major sway and his endorsement of the ‘OUT’ camp was seen to increase the probability of Britons voting to leave the EU.
The ‘Greenback’ was also supported by a better-than-anticipated rise in US consumer prices. American inflation jumped significantly from 0.7% to 1.4%, beating estimates of 1.3%. However, US sentiment was held back by a disappointing slowdown in average earnings from 1.7% to 1.2%.
Canadian Dollar
Sterling gave up its 150 pip Friday gains against the Canadian Dollar at the beginning of this week’s session as ‘Brexit’ bets escalated on news of Boris Johnson’s revolt against Prime Minister David Cameron. The move marks a significant shift in Boris’ strategy and places him as the prime candidate to take over from Cameron if Britons do in fact vote to exit the European Union.
In Canada data showed that retail sales shrunk -2.2% in December but the ‘Loonie’ drew support from a better-than-anticipated 2.0% rise in the headline consumer price index.
Australian Dollar
The Pound to Australian Dollar exchange rate grew by around a cent on Friday as decent British data prints bolstered the appeal of the UK currency. But Sterling dipped over two cents when markets reopened for the week as ‘Brexit’ fears intensified and demand for the Pound dried up.
New Zealand Dollar
The Pound crash landed against the New Zealand Dollar at the start of this week’s trading session as analysts upped their bets of a ‘Brexit’ in reaction to the latest developments in the EU referendum saga.
Data Released
09:00 EUR Markit Eurozone Composite PMI (FEB P) Medium 53.3
14:45 USD Markit US Manufacturing PMI (FEB P) Medium 52.5