Sterling
The Pound weakened across the board yesterday as ‘Brexit’ bets intensified in reaction to two new EU opinion polls giving the ‘Out’ camp a lead over ‘In’.
ICM’s poll put the ‘Out’ camp up by five points: 48% to 43%. While YouGov’s latest survey gave the ‘Out’ camp a four-point 45% to 41% lead. The shift in sentiment towards ‘Brexit’ appears to coincide with the ‘Purdah’ period, which started on May 27 and prevents civil servants from making interventions in the referendum campaign. Last week’s TV appearances from David Cameron (In) and Michael Gove (Out) also look to have shaped sentiment, with Gove opting to focus on the contentious issue of immigration rather than the economy – which most analysts agree would suffer following a vote to leave the EU.
Euro
The Pound to Euro exchange rate softened by over half a cent to strike a new three-week low yesterday in reaction to the latest EU opinion polls.
Sterling is now around five cents weaker than it was this time last week, reflecting the massive shift in polling results that now suggest Britons are more likely to vote to leave the EU than remain part of the bloc. The Pound is likely to weaken further if polls continue to suggest a ‘Brexit’ is on the cards but GBP/EUR could easily start to rise again if public opinion moves back in favour of staying inside the European Union.
Data due for release this morning is anticipated to confirm that the Eurozone economy grew at a yearly pace of 1.5% in the first quarter of 2015. Markets are not expected to react strongly to the print unless it features a significant upgrade or downgrade to previous estimates.
US Dollar
‘Cable’ depreciated by around -70 pips yesterday, striking a three-week low in the process, as markets sold the Pound to reflect a higher perceived chance of ‘Brexit’ at the June 23 EU referendum.
Across the pond in the US, the day’s major news item saw Federal Reserve Chairwoman Janet Yellen keep her cards close to her chest regarding the date of the next Fed rate hike. Yellen acknowledged that Friday’s dismal NFP jobs report was ‘disappointing’ and chose to highlight global economic risks – such as Britain’s EU referendum – as reasons to remain cautious. The Fed chief confirmed that rates were likely to rise ‘gradually’ but would not be drawn on exactly when this would happen.
GBP/USD remained fairly flat following Yellen’s statement, with investors continuing to bet that the Fed will not raise rates this month.
Canadian Dollar
Sterling tumbled by around two cents against the Canadian Dollar yesterday. The Pound struck its lowest level in around three weeks as ‘Brexit’ jitters led to a collapse in demand for Sterling across the currency market. The ‘Loonie’, meanwhile, was bolstered by a rise in global commodity prices as investors continued to push their Fed rate hike bets into the future.
Australian Dollar
The Pound to Australian Dollar exchange rate weakened by another cent yesterday to strike its lowest level in almost a month as a mixture of softer Fed rate hike bets and stronger ‘Brexit’ bets worked against GBP/AUD.
Investors were also confident that the Reserve Bank of Australia would vote to leave interest rates on hold at 1.75% through June.
New Zealand Dollar
Sterling struck its lowest level against the New Zealand Dollar since April yesterday as jittery investors sold the Pound ahead of this month’s EU referendum. However, market predictions indicate that the Reserve Bank of New Zealand is likely to cut its benchmark interest rate -25 basis points to 2.00% on Wednesday night and this helped GBP/NZD claw back its losses by the end of the London session.
Data Released
10:00 EUR Euro-Zone Gross Domestic Product s.a. (YoY) (1Q F) Medium 1.5%