The Pound to US Dollar exchange rate softened by around three cents last week to strike a two-month low earlier this morning.
GBP/USD tumbled -70 pips last Monday in response to a poll from ICM giving the ‘Out’ camp a five-point 48% to 43% lead over the ‘In’ campaign in the run-up to the EU referendum. During the evening Federal Reserve Chairwoman Janet Yellen spoke about the ‘disappointing’ May US NFP jobs report and flagged the ‘Brexit’ vote as a key risk to financial stability. Ultimately, Yellen suggested that rates would rise gradually over the next year but avoided any hints as to when the next rate hike would occur.
Sterling rallied by around a cent on Tuesday and struck a weekly high in response to new polling data, this time giving the ‘In’ campaign a sizable 12% lead over the ‘Out’ camp.
‘Cable’ remained above 1.45 on Wednesday as UK manufacturing production printed at 2.3%, massively outperforming analysts’ expectations of 0.1%.
GBP/USD Volatility Expected Following ‘Brexit’ Vote
However, things started to turn sour for Sterling on Thursday as investors began ramping up their ‘Brexit’ bets. The cost to insure against swings in GBP/USD rose to a seven-year high and this helped weaken the Pound versus the ‘Greenback’.
The Sterling slide continued on Friday, and indeed at the start of this week’s session, as referendum jitters continued to frighten investors out of the Pound and into the relative safety of the safe haven US Dollar. GBP/USD is now around three cents weaker than it was a week ago and recently struck a two-month low around the 1.41 mark.
Week Ahead
There are a number of high profile data points on the calendar this week, however, most will remain in the shadow of the EU referendum and the latest opinion polls.
One announcement that will cut through the ‘Brexit’ noise is Wednesday evening’s Federal Reserve policy decision. Markets are fairly sure that the Fed will not opt to raise rates following May’s savage NFP report but Chairwoman Yellen’s statement will be scoured for clues regarding a potential hike in July.
A surprise June hike would be liable to send the US Dollar soaring against the Pound. Likewise, hints at higher rates in July would also give the ‘Greenback’ a boost. But a cautionary statement could easily prompt a little bit of a devaluation in the US Dollar.
Other data to look out for include: UK and US inflation reports, the Bank of England’s policy decision and retail sales data from both nations. However, unless there are any sensational deviations from the market forecasts, these reports are unlikely to have much of an impact on GBP/USD, while investors continue to fret about the June 23 referendum.
The Pound looks susceptible to further declines if sentiment does not begin to swing significantly in favour of remaining in the EU.
Data Released
14th June GBP Consumer Price Index (YoY) (MAY) 0.40%
14th June USD Advance Retail Sales (MAY) 0.30%
15th June GBP ILO Unemployment Rate (3M) (APR) 5.10%
15th June GBP Average Weekly Earnings (3M/YoY) (APR) 1.70%
15th June USD Federal Open Market Committee Rate Decision (JUN 15) 0.25%
15th June USD FOMC Rate Decision (Lower Bound) (JUN 15) 0.50%
15th June USD Fed Summary of Economic Projections
16th June GBP Retail Sales (YoY) (MAY) 3.80%
17th June GBP Bank of England Rate Decision (JUN 16) 0.50%
17th June USD Consumer Price Index (YoY) (MAY) 1.10%