Sterling
The Pound lost ground yesterday as a number of concerned voices emerged in relation to the upcoming EU referendum.
IMF Chief Christine Lagarde said that she would release a report on the impact of a ‘Brexit’ scenario in May, commenting that the Fund’s findings ‘strongly support the view it would hurt the UK and EU’.
Back in Britain things heated up as Bank of England Governor Mark Carney commented on the potential negative implications of a ‘Brexit’. Carney said the vote was the ‘biggest domestic risk to financial stability’ and suggested a vote to leave the EU would weaken the Pound, deter business investment and cause some firms to relocate to Europe.
In response pro-‘Brexit’ Tory MP Jacob Rees-Mogg said it was ‘beneath the dignity of the BoE to be making speculative pro-EU statements’. The parliamentary scuffle caught the imagination of financial commentators, who described the debate as akin to a feud between superheroes… It’s been a quiet week so far in terms of UK news.
Euro
The Pound to Euro exchange rate tumbled by around a cent yesterday as investors sought to lock-in profit from the recent Euro weakness ahead of the European Central Bank announcement on Thursday.
Last time out in December the Euro weakened heavily in anticipation of further stimulus but shot up after the announcement because traders were unimpressed with the ECB’s decision to cut the deposit rate but leave the asset purchasing target at €60 billion a month. It seems that investors have learned their lesson and subsequently closed their positions ahead of the decision.
This means that a dovish announcement – a deposit rate cut and a boost to the QE target – has the potential to weaken the Euro on Thursday. Conversely, a less decisive outcome – a deposit rate cut and a more liberal approach to the type of bonds bought – should push the single currency higher but it may not be an explosive boost.
US Dollar
Sterling slid by around half a cent yesterday, declining from a two-week high against the US Dollar, as ‘Brexit’ fears were rejuvenated following a lively debate in parliament.
The US Dollar appreciated as soft Chinese data brought risk aversion back to the table, which increased demand for the safe-haven ‘Greenback’.
Sentiment towards ‘Cable’ was also hurt as investors geared up for this morning’s UK manufacturing production report, which is tipped to confirm that output contracted -0.7% in January.
Canadian Dollar
The Pound to Canadian Dollar exchange rate rallied by around 70 pips yesterday as data out of China showing that exports slumped -25% in February ate into risk sentiment and reduced demand for the commodity-sensitive ‘Loonie’.
The Canadian Dollar’s dip versus Sterling accelerated during the afternoon when Kuwait announced it would not agree to curb oil production unless all other major producers, including Iran who recently rejoined markets and is looking to increase production, signed up for the freeze.
This afternoon’s Bank of Canada interest rate decision is predicted to see the headline bank rate remain at 0.50%. The ‘Loonie’ could rally if policymakers talk down the prospect of future rate cuts but could sink if officials hint at further easing.
Australian Dollar
Risk aversion flows dragged the Australian Dollar lower against the Pound yesterday as Chinese export data disappointed. However, resurgent ‘Brexit’ fears weighed on Sterling and brought GBP/AUD back to its opening levels by the end of the London session.
The -25% slide in Chinese exports was the largest dip for seven years and came hot on the heels of the slowest Chinese GDP score for 25 years. The ongoing weakness in the world’s second largest economy is of particular concern to ‘Aussie’ Dollar traders because China is traditionally the largest buyer of the nation’s mining exports.
New Zealand Dollar
The Pound to New Zealand Dollar exchange rate remained fairly flat yesterday ahead of this evening’s interest rate announcement from the Reserve Bank of New Zealand.
Analysts expect the RBNZ to leave rates on hold at 2.50% but rate cuts are expected later on in the year. As such, the ‘Kiwi’ is liable to depreciate if policymakers are seen paving the way for lower rates in the near term.
Data Released
09:30 GBP Industrial Production (YoY) (JAN) Medium 0.0%
09:30 GBP Manufacturing Production (YoY) (JAN) Medium -0.7%
15:00 CAD Bank of Canada Rate Decision (MAR 8) High 0.50%
15:00 USD Wholesale Inventories (JAN) Medium -0.2%
20:00 NZD Reserve Bank of New Zealand Rate Decision (MAR 10) High 2.50%