- ‘Brexit’ jitters damage Sterling – Volatility expectations highest since 2009.
- GBP/EUR down a cent – ECB policy decision on tap.
- ‘Cable’ slides again – Mixed bag of US data.
- Australian GDP impresses – ‘Aussie’ rallies.
Sterling
Sterling weakened against the majors again yesterday as a new opinion poll suggested that this month’s EU referendum could still be too close to call.
The Pound depreciated as the cost of hedging against Sterling volatility over the next month surged to its highest level since 2009. Following on from ICM’s poll on Tuesday, a new YouGov poll published yesterday showed that voters remain neck and neck just three weeks before the vote. Bookmakers now give a 26% chance of ‘Brexit’, up from just 17% last week.
British sentiment was also hurt by news that the OECD has cut its 2017 UK growth forecasts from 2.1% to 1.7%, citing weaker demand due to the uncertainty surrounding the referendum. However, the May manufacturing PMI pleased investors, printing at 50.1, confounding expectations of a contractionary score of 49.6.
Euro
The Pound to Euro exchange rate tumbled through psychological support yesterday as the cost to insure against Sterling volatility surged, prompting investors to pull out of the UK currency. GBP/EUR declined by over a cent on the day.
Analysts noted that Sterling’s inability to rally during the morning session, when factory output printed positively compared to calls for contraction, bodes ill for the Pound and suggests that investors are wary of further depreciation as the vote approaches.
The European Central Bank is due to announce monetary policy for June this afternoon, however, the single currency is not anticipated to fluctuate too strongly because analysts are fairly confident that the bank will not alter its outlook at this juncture. However, there is potential for the Euro to rally if policymakers talk down the prospect of additional easing in the future, or slide, if the ECB hints at near term stimulus.
US Dollar
Uncertainty and ‘Brexit’ jitters ahead of this month’s EU vote sent the Pound sliding lower by around a cent against the US Dollar yesterday.
It was another day of mixed data for the US, with Markit’s PMI of manufacturing output falling to a 2009 low of 50.7 and ISM’s index rising unexpectedly from 50.8 to 51.3. Neither of the factory output reports had a major impact on demand for the ‘Greenback’ because manufacturing activity is unlikely to play much of a part in the Federal Reserve’s interest rate discussions later this month. It is inflation, wage growth and general economic stability that will probably shape the Fed’s June decision. And with the ‘Brexit’ referendum coming up, the US central bank will probably err on the side of caution this time around.
Canadian Dollar
The Canadian Dollar rallied by around half a cent against the Pound yesterday as ‘Brexit’ fears continued to weigh on Sterling.
The only Canadian ecostat of note showed that manufacturing output rose at a sturdy rate of 52.1, as expected, and subsequently demand for the ‘Loonie’ was dictated by fluctuating oil prices. The commodity-sensitive currency benefitted mildly as crude appreciated ahead of today’s OPEC meeting, which traders hope will bring about an agreement to curb output in order to drive prices higher.
Australian Dollar
After racking up three cents worth of gains against Sterling on Tuesday, the Australian Dollar appreciated by a further 150 pips yesterday thanks to some better-than-anticipated data prints in the Asia-Pacific region.
The ‘Aussie’ garnered most of its support from a domestic growth report detailing how the Antipodean economy almost doubled output from 0.6% to 1.1% in the first quarter. The outperforming score smashed economists’ forecasts of 0.8% and helped drive the annual GDP print up from 3.0% to 3.1%. The ‘Aussie’ also benefitted from a 50.1 Chinese manufacturing print, which beat expectations of 50.0.
New Zealand Dollar
The Pound to New Zealand Dollar exchange rate slumped by around two cents yesterday as slightly stronger-than-anticipated Chinese data boosted risk sentiment in the Asia-Pacific region. The ‘Kiwi’ also drew support from investors following the latest GlobalDairyTrade auction, which saw dairy prices rise 3.4%.
Data Released
09:30 GBP Markit/CIPS UK Construction PMI (MAY) Medium 52.0
12:45 EUR European Central Bank Rate Decision (JUN 2) High 0.00%
12:45 EUR ECB Deposit Facility Rate (JUN 2) Medium -0.40%
12:45 EUR ECB Asset Purchase Target (JUN) Medium EU80b