Sterling
Sterling weakened across the board yesterday as investors began to price in the prospect of an untimely break up of Prime Minister David Cameron’s government.
Work and pensions secretary Iain Duncan Smith shocked analysts over the weekend by announcing his resignation in reaction to Chancellor George Osborne’s ‘deeply unfair’ budget. Although speculation is rife that Smith’s resignation was politically motivated ahead of June’s EU referendum (Osborne is pro EU, while Smith is one of the most prominent members of the ‘LEAVE’ camp) the former government minister maintained that the move was a reaction to Osborne’s decision to cut disability benefits – a bill that has since been retracted.
Investors sold the Pound in reaction to the Tory infighting as fears of political instability bubbled to the surface.
Euro
The Pound to Euro exchange rate slid lower by around half a cent yesterday on concerns that a civil war within the ruling Conservative party could exacerbate economic and political uncertainty in the run-up to the ‘Brexit’ vote in June.
However, demand for Sterling could pick up later this morning if data shows, as expected, that British consumer prices rose from 0.3% to 0.4% in February. This would mark a much better outlook for inflation in the UK than in Europe, where CPI was reported to have shrunk -0.2% last week.
The European Central Bank recently cut interest rates and bolstered its asset purchasing scheme in order to stimulate price pressures, which could put pressure on the Euro over the next few months. On the other hand the Bank of England recently voted unanimously against loosening monetary policy, which gave Sterling a sizable boost.
US Dollar
Despite US existing home sales falling -7.1% yesterday the Pound lost out on around a cent against the US Dollar.
Traders overlooked the weak US housing data as attention turned to the UK’s fractured political landscape. GBP/USD gave up a monthly high in reaction to Iain Duncan Smith’s resignation but the selling stopped after -100 pips, which suggests that the majority of market players do not realistically envisage a government collapse. However, if UK PM David Cameron were to lose the EU referendum in June then the prospect of his parliamentary term coming to a premature end would certainly increase.
As things stand ‘Cable’ appears to be on a neutral trend following a tumultuous week of highs and lows last week.
Canadian Dollar
A drop off in crude oil stockpiles helped drive the value of Canada’s most lucrative export above US$40 a barrel yesterday. Demand for oil was also stoked by news that around 15 OPEC members plan to meet in Qatar next month to discuss a solution to the recent supply glut.
The upbeat oil news combined with negative UK economic sentiment to push the Pound lower by around -70 pips against the Canadian Dollar yesterday.
Australian Dollar
Sterling initially weakened by around -150 pips against the Australian Dollar yesterday but GBP/AUD consolidated its losses to mark a -65 pip daily fall.
The risk-sensitive ‘Aussie’ Dollar struggled against most of its peers as broad US Dollar strength weighed on the high-beta currency. However, the Pound proved to be the ultimate loser as speculative investors sold off Sterling assets in reaction to the civil war at Tory HQ.
New Zealand Dollar
The Pound to New Zealand Dollar exchange rate lost out on over a cent yesterday as investors continued to chip away at almost all the Sterling crosses following the weekend’s shock resignation of work and pensions secretary Iain Duncan Smith.
Data Released
09:30 GBP Consumer Price Index (YoY) (FEB) High 0.4%
10:00 EUR German ZEW Survey (Economic Sentiment) (MAR) Medium 5.9
13:45 USD Markit US Manufacturing PMI (MAR P) Medium 51.5
Data Released
09:30 GBP Consumer Price Index (YoY) (FEB) High 0.4%
10:00 EUR German ZEW Survey (Economic Sentiment) (MAR) Medium 5.9
13:45 USD Markit US Manufacturing PMI (MAR P) Medium 51.5