GBP/EUR – Edges Higher as Unemployment Falls
As EU referendum opinion polls increasingly favour the ‘Leave’ campaign, uncertainty surrounding a potential ‘Brexit’ has caused the Pound to soften considerably versus its major peers in recent weeks. Such has been the depreciation, irrespective of domestic data, that the Pound edged higher during Wednesday’s European session thanks to consolidative trade. In addition, Sterling found support after UK jobs data produced positive results. In particular, an unexpected fall in unemployment to just 5% boosted sentiment towards GBP. However, with Sterling implied volatility hovering around record-high levels, ‘Brexit’ jitters are likely to cause further significant price-swings. Thursday will see the Bank of England (BOE) interest rate decision, although few economists expect policymakers to make any changes ahead of the referendum conclusion and with inflation remaining well below target.
GBP/USD – Gains ahead of FOMC Rate Decision
With ‘Brexit’ volatility weighing heavily on risk-appetite, the US Dollar has advanced versus its peers in recent days. This is despite implied odds of a Federal Reserve interest rate hike at 0% this month. Economists predict that the combination of domestic political uncertainty and EU referendum uncertainty will cause the Federal Open Market Committee (FOMC) to remain in ‘wait and see’ mode. The accompanying press conference is far more likely to provoke market volatility and changes for the Dollar. If Chairwoman Janet Yellen retires rhetoric such as ‘patience’ and leaves the door open for a near-term hike, the Dollar will rally versus its major peers.
USD/GBP – Central Bank Decisions in Focus
Whilst neither the Bank of England nor the Federal Reserve are expected to alter policy this week, there is still potential for significant currency volatility in response. Should the accompanying BoE minutes indicate that policymakers are unnerved by the prospect of a ‘Brexit’, the Pound could lose significant ground versus its peers. Similarly, if Janet Yellen talks down the prospect of a near-term Fed cash rate increase the Dollar is likely to slump.
EUR/USD – Climbs despite ECB Bond Buying Uncertainty
After it was revealed that the yield on German 10-year bunds turned negative, undermining confidence in the European Central Bank’s (ECB) ability to stimulate an economic recovery, the single currency dived versus its major peers. Comparative US Dollar strength following risk-off trade also pushed the Euro lower. Significant domestic data is somewhat thin-on-the-ground this week, so traders will likely be looking ahead to next week’s German ZEW Economic Sentiment survey for June.