‘Cable’ depreciated by around two cents last week as ‘Brexit’ bets increased in reaction to political instability at home and terrorist activity abroad.
‘Brexit’ Bets On The Rise
The Pound to US Dollar exchange rate fell from a monthly high at the start of last week’s session as traders reacted to Iain Duncan Smith’s resignation. The former work and pensions secretary quit following George Osborne’s latest budget, which featured cuts to disability benefits as well as a reduction to the tax bills of higher earners. IDS is a key proponent of Britain’s ‘Brexit’ campaign and Osborne supports renewal of membership. Unsurprisingly, traders viewed the move through the prism of the EU debate and the Pound weakened as ‘Brexit’ bets increased.
Tuesday saw GBP/USD retract further as markets responded to the deadly terrorist attacks in Brussels by predicting that anti-immigration sentiment would swell in the aftermath of the horrific events. British CPI inflation also came in softly at 0.3% compared to estimates of 0.4%, which helped the ‘Greenback’ strengthen by around two cents against Sterling on the day.
The Pound’s woes continued on Wednesday 23 March as this marked three months until the EU vote. An index of volatility in GBP/USD rose to its highest level in seven years as the referendum came into sharper relief. The US Dollar also benefitted from a slew of hawkish comments from Federal Reserve policymakers suggesting that rates could be raised as soon as April.
However, the GBP/USD decline slowed on Thursday when British retail sales came in at 3.8%, beating expectations of 3.5%. Sterling began the week with a robust 130-pip of gains in reaction to some weaker-than-anticipated US inflation data, which printed at 1.7% compared to calls for 1.8% on Monday.
Fed and NFP On The Horizon
The next key event on the calendar for GBP/USD is this afternoon’s statement from Fed Governor Janet Yellen. If Yellen strikes a hawkish tone in line with the policymakers who spoke out last week then the US Dollar is liable to jump; if Yellen talks down near term rate hike prospects then we could see demand for GBP/USD increase.
Other significant events include the UK Q4 GDP print and the British manufacturing PMI report. But the real market mover is likely to be Friday’s US non-farm payrolls index. Analysts anticipate a sturdy number of 210,000 and a score of this calibre could easily drive GBP/USD lower. Wage growth is tipped to remain at 2.2% but anything higher could have a strong impact on demand for the ‘Greenback’.
Heads Up
Summary of major upcoming data releases that we think may move the market.