Sterling
In the absence of any significant economic data, British traders were drawn back into the ‘Brexit’ debate after the Treasury released a report into the potential consequences of Britain voting to leave the European Union.
Using the trade deal that Canada enjoys with the EU as its basis, the Treasury’s report suggested that the UK economy would shrink -6% by 2030 and British households would end up worse off by around £4,300 each year. It was also posited that taxes would have to be raised 8% and funding to the NHS would be slashed by a third.
Critics suggest that, with economists unable to accurately predict economic growth on a two-year basis, it is ‘intellectually dishonest’ to attempt to put a figure on something as volatile and far-reaching as a vote to leave the EU. They also question the assumption that reduced GDP growth would affect each household in the same way and argue that the figure should have included the projected four million rise in population between now and 2030 – the argument being that a larger population would lessen the burden of reduced economic output on each individual.
It appears the Pound traded slightly stronger following the report, as traders bet that pessimism surrounding ‘Brexit’ might persuade voters to side with the remain campaign.
Euro
The Pound to Euro exchange rate rallied by around half a cent to strike a two-week high yesterday as investors bet that European Central Bank President Mario Draghi would resume loosening policy in September.
A survey of economists carried out by Bloomberg showed that 60% of respondents expect additional stimulus and the majority expect it to come at the beginning of the third quarter. Following the shift in focus at March’s meeting, it is anticipated that the ECB will look to prolong and bolster its QE programme rather than make further cuts to its benchmark interest rate. The increase in stimulus bets reduced demand for the single currency and allowed Sterling to steal 50 pips of daily gains.
US Dollar
‘Cable’ appreciated by around 80 pips during the London session yesterday as the Treasury’s downbeat assessment of Britain’s economic prospects outside of the European Union failed to weigh on the Pound.
Softening Federal Reserve rate hike bets continued to prove a drag on the ‘Greenback’ but the spectre of a ‘Brexit’ could easily lead to a reversal of GBP/USD’s Monday gains over the next few days. US ecostats due for release this afternoon are predicted to show that housing starts shrunk -0.7% but that building permits rose 2.0%.
Canadian Dollar
The Pound to Canadian Dollar exchange rate jumped 200 pips higher at the start of yesterday’s session in reaction to the news of a failed meeting between the world’s major oil producing nations in Doha.
However, oil prices (which shrank -7%) steadied during the afternoon when it was announced that a Kuwaiti workers’ strike had slashed the nation’s oil output by around 60%. The Kuwaiti news allowed the ‘Loonie’ to claw back most of its losses and GBP/CAD closed for the day up just 50 pips.
Australian Dollar
Sterling’s oil-related gains were cut short yesterday by the news of a major strike by oil workers in Kuwait. The reduced output from Kuwait’s oil fields drove prices higher and allowed risk sensitive assets such as the ‘Aussie’ to rebound versus safe havens like the Pound.
However, the Australian Dollar could suffer in the future now that the hopes of an OPEC / non-OPEC deal to curb output have been dashed.
New Zealand Dollar
The Pound to New Zealand Dollar exchange rate rose two cents then declined four cents before ending the day very close to where it began yesterday. The ‘Kiwi’ was supported by better-than-anticipated inflation of 0.2% in Q1, which beat expectations of 0.1%. However, the failed Doha oil meeting proved a negative influence.
Data Released
10:00 EUR Euro-Zone ZEW Survey (Economic Sentiment) (APR) High 10.6
13:30 USD Housing Starts (MoM) (MAR) Medium -0.7%
14:30 AUD RBA Governor Stevens Speech in New York Medium
15:00 NZD Dairy Auction Whole Milk Powder MT (APR 19) High $2,013