Sterling
The Pound floundered yesterday as investors reacted to a new opinion poll published in the Daily Telegraph suggesting that more Britons wish to leave the European Union than remain part of the 29-nation bloc.
The poll gave the LEAVE camp a two-point lead and this set off another bout of Sterling selling as analysts adjusted their projections. Traders are worried that a ‘Brexit’ scenario could deter business investment, reduce GDP output, push back Bank of England rate hike expectations and drive British borrowing costs higher, thus threatening the mammoth current account deficit that needs servicing.
The credibility of opinion polls is hard to judge at this stage but there is potential for the Pound to decline further if sentiment continues to show a strong chance of the UK leaving the EU in June.
Euro
Sterling slid by just over a cent against the Euro yesterday as ‘Brexit’ fears intensified following the Daily Telegraph’s latest opinion poll.
Today’s data is tipped to see the British unemployment rate hold steady at a decade low of 5.1% and average earnings increase slightly from 1.9% to 2.0%. However, any optimism deriving from these results is likely to be wiped out during the Chancellor’s latest budget statement.
George Osborne recently stated that the slowdown in China, the mayhem in commodity markets and the political instability in the Middle East mean that the global economy was currently experiencing more uncertainty than at any point since the financial crisis. With these bearish words as a backdrop most analysts expect the Chancellor to rein in spending to help try and balance the UK’s ballooning deficit. This could easily weigh on demand for the Pound to Euro exchange rate in the short term.
US Dollar
‘Cable’ depreciated by almost -150 pips yesterday as British sentiment soured on ‘Brexit’ scenario bets ahead of some key economic announcements.
If GBP/USD escapes unscathed from this afternoon’s budget statement from Chancellor George Osborne then the Pound can count itself lucky. However, the threat doesn’t end there; the Federal Reserve is due to announce its monetary policy decision for March during the evening.
Although markets only give a 4% chance of rates being raised most investors expect the Fed to strike a hawkish tone, possibly paving the way for another rate hike in June or September of this year. This is liable to bolster demand for the ‘Greenback’ and put pressure on the Pound to US Dollar exchange rate.
Canadian Dollar
Sterling weakened by around a third of a cent yesterday as negative British sentiment overshadowed the latest slide in oil prices.
Oil, Canada’s most lucrative export, snapped three weeks of steady gains on Monday when Iran confirmed it would not be curbing output until production increased to pre-sanction levels. This brought the value of a barrel of crude below US$40 and the commodity ticked lower to US$36 a barrel yesterday. If the oil selloff continues then it will likely take its toll on the ‘Loonie’, however, at this moment in time the uncertain UK outlook is insulating the Canadian Dollar from any significant losses against Sterling.
Australian Dollar
The Pound to Australian Dollar exchange rate remained flat on the day yesterday as investors weighed up the threat of further rate cuts from the Reserve Bank of Australia against the possibility of Britons voting to leave the European Union.
The RBA’s latest minutes report showed that policymakers are upbeat regarding the labour market but not averse to future policy easing if global conditions were to deteriorate.
New Zealand Dollar
The Pound sank by around -150 pips against the New Zealand Dollar yesterday morning as traders reacted to the latest EU referendum opinion poll. However, demand for the commodity-sensitive ‘Kiwi’ shrank during the afternoon when the results of the latest dairy auction showed that farmer payouts plunged -2.9%, thus putting more pressure on the nation’s biggest export market.
Later this evening data is anticipated to show that the New Zealand economy slowed from 0.9% to 0.7% quarterly growth in the final three months of 2015. Although not a massive downturn the figure does carry the potential to weigh on the New Zealand Dollar.
Data Released
09:30 GBP ILO Unemployment Rate (3M) (JAN) Medium 5.1%
09:30 GBP Average Weekly Earnings (3M/YoY) (JAN) Medium 2.0%
12:30 GBP Osborne Makes Budget Speech to Parliament High
12:30 USD Consumer Price Index (YoY) (FEB) High 0.9%
13:15 USD Manufacturing (SIC) Production (FEB) Medium 0.1%
18:00 USD Federal Open Market Committee Rate Decision (MAR 16) High 0.50%
18:30 USD Fed Chair Yellen Holds Press Conference (MAR 16) High
21:45 NZD Gross Domestic Product (QoQ) (4Q) Medium 0.7%
21:45 NZD Gross Domestic Product (YoY) (4Q) High 2.1%