Sterling
The Pound lost a little bit of ground versus some of the majors yesterday on a day devoid of any fresh, meaningful economic releases. The only piece of news that managed to make an impact on the Pound was the publication of an ICM poll, which gave the ‘Out’ camp a 46% to 44% lead over the ‘In’ campaign ahead of next month’s EU referendum.
Despite the tendency for most polls to predict a very close vote, the betting agencies only give the ‘Out’ camp a 33% chance of success. Given that Sterling has appreciated over the last few weeks it seems that most traders agree with the bookies.
Euro
The Pound to Euro exchange rate remained relatively flat yesterday, sliding slightly, as Eurogroup leaders discussed the potential future steps for Greece and its bailout package. IMF officials have called for Greece’s lenders to offer the embattled nation relief on its debt, which currently stands at 180% of GDP. Although new reforms were discussed no debt relief was announced yesterday, and the longer the situation remains unresolved the more pressure Greece could face from financial markets.
In the run-up to Britain’s EU referendum on June 23 it is crucial that European officials achieve some form of resolution, otherwise the Greek struggle could start to weigh on UK voters’ minds. In the long term, it is entirely possible that a ‘Brexit’ could eventually prompt disgruntled Greeks to default on their debts and perform a ‘Grexit’ of their own.
If the Greek crisis is allowed to continue, the Euro could once again depreciate on existential fears of disintegration.
US Dollar
‘Cable’ barely budged an inch yesterday as investors paused for thought ahead of the Bank of England’s ‘Super Thursday’ trio of announcements later this week.
GBP/USD remains lower following the US non-farm payroll report on Friday, which saw employment growth cool but wage growth rise, and we could see Sterling cede more ground to the ‘Greenback’ if BoE policymakers strike a dovish tone on ‘Super Thursday’. The bank is unlikely to make any massive alteration to its forecasts due to the profound and unknown implications of next month’s ‘Brexit’ vote, but the Pound would be liable to weaken if one or more policymakers vote for lower rates at this juncture.
Canadian Dollar
Sterling rallied by around half a cent against the Canadian Dollar yesterday as crude oil prices tumbled in response to a reevaluation of the impact of the wildfire in Alberta.
The wildfire covered 700 square miles of Canadian oil fields at one point over the weekend and has reduced Canadian oil output by around 1 million barrels per day. However, the fire seems to be slowing and investors do not expect the situation to have a significant impact on global supply going forward. Subsequently, oil prices tanked and so did the commodity-correlated ‘Loonie’.
Australian Dollar
The Pound continued to strengthen versus the Australian Dollar yesterday in response to wave upon wave of Reserve Bank of Australia rate cut bets. The Australian central bank surprised markets by slashing rates last week and subsequent communiqués suggest that there are more rate cuts in the bag. The ‘Aussie’ is a risk-sensitive currency that benefits from its relatively high interest rate, but is susceptible to heavy losses in times of economic uncertainty when looser monetary policy is more appropriate.
New Zealand Dollar
Sterling also rallied against the New Zealand Dollar yesterday, registering a 150-pip daily gain as RBA rate cut bets stoked fears that trade between the two Antipodean nations could decrease. The threat of looser policy across the Tasman also prompted a surge of bets that the Reserve Bank of New Zealand will follow suit and cut its benchmark borrowing rate.
Data Released
09:30 GBP Visible Trade Balance (Pounds) (MAR) Medium -£11450
15:00 USD Wholesale Inventories (MAR) Medium 0.1%