- Sterling slides on referendum jitters – Factory output strongest in April since 2012.
- GBP/EUR down 70 pips – ECB begins corporate bond buying.
- ‘Cable’ weakens – AndCAD rallies on rising oil prices.
- RBNZ leaves rates on hold – ‘Kiwi’ rallies 5 cents.
Sterling
Without any significant new EU referendum data to contend with, holders of the Pound will have been disappointed to see Sterling depreciate yesterday – a day when factory output massively outperformed analysts’ forecasts. However, economic data has largely been relegated to slight blips on the chart over the last few weeks as the Pound has increasingly become a currency preoccupied with the June 23 vote.
Compared to forecasts of 0.0% and 0.1% the industrial and manufacturing sectors saw robust growth of 2.0% and 2.3%, respectively in April. The buzzing results reflect the best month of factory output since 2012 and subsequently economic growth is tipped to have accelerated from 0.4% to 0.5% in the three months to May. Ordinarily this would have bolstered the appeal of the Pound, but not on this occasion as investors opted to focus on the potential perils of this month’s EU referendum.
The options market shows that traders are currently more concerned with the threat of volatility in the Sterling exchange rate than they have been since 2004.
Euro
The Pound to Euro exchange rate weakened by around -70 pips yesterday as ‘Brexit’ jitters overshadowed a couple of upbeat UK ecostats.
There were no significant European economic releases yesterday, nor are there any on the schedule today. However, yesterday did see the European Central Bank kick off its corporate bond buying programme with a deluge of investments in European telecommunications, insurance and utility companies. The scheme is designed to boost liquidity and stoke demand in the credit sector in order to ultimately bolster inflation expectations.
These kinds of stimulus programmes often lead to depreciations in the domestic currency as the yield on investments decreases. But on this occasion it was not the case: most probably because the programme was announced, and subsequently priced into the single currency, months ago.
US Dollar
Sterling touched a key psychological level yesterday but resistance swiftly dragged GBP/USD back down to earth.
The Pound had initially benefitted from the robust manufacturing and industrial production reports but a mixture of profit-taking and ‘Brexit’ fears weighed on Sterling during the afternoon.
This morning’s UK trade balance report is predicted to show that the government borrowed around £11 billion in April to balance the books but, unless we see a major discrepancy between the forecasts and the actual results, GBP/USD is unlikely to be effected by the print.
Canadian Dollar
Sterling plummeted by around -130 pips against the Canadian Dollar yesterday in reaction to another surge in oil prices. Consequently, GBP/CAD reached its strongest level for around five weeks.
Crude rallied during yesterday’s session before closing at an 11-month high of US$51.23 a barrel. The commodity was driven higher by a sharper-than-anticipated -3.3 million slide in US oil inventories.
Australian Dollar
The Pound to Australian Dollar exchange rate plunged to a new monthly low yesterday as ‘Brexit’ fears continued to weigh on demand for Sterling.
The ‘Aussie’, on the other hand, maintained a wave of support following the Reserve Bank of Australia’s decision on Tuesday to leave interest rates unchanged at 1.75%.
New Zealand Dollar
The New Zealand Dollar also benefitted from a central bank announcement yesterday as investors piled into the ‘Kiwi’ in reaction to the Reserve Bank of New Zealand’s announcement that it was leaving rates on hold at 2.25%.
The RBNZ policy decision helped the high-beta ‘Kiwi’ register a mammoth daily gain of five cents against the Pound yesterday.