Sterling
‘Brexit’ fears continued weighing on the Pound yesterday.
UK inflation data printed below consensus, at 0.3% compared to forecasts of 0.4%, but the report had very little bearing on the Sterling exchange rate because the Bank of England is widely expected to leave interest rates on hold for the foreseeable future. Rising petrol prices, restaurant menus and smartphone services were equalled out by sliding clothing and food prices.
A new poll from TNS gave the ‘Out’ camp a 7% lead yesterday and this prompted another bout of Sterling selling.
This morning’s UK labour market data is tipped to show that average earnings slowed from 2.0% to 1.7% in April and that unemployment remained at 5.1%. The reports are unlikely to help the Pound’s cause and could even drag the UK currency lower.
Euro
The Pound to Euro exchange rate hovered just above two-month lows yesterday as markets continued to sell Sterling and take out insurance against swings in the Pound ahead of the June 23 referendum.
In a clear sign that the prospect of a ‘Brexit’ is being taken seriously by central bankers, an anonymous European Central Bank source told the press yesterday that the ECB and the Bank of England would publicly pledge to backstop financial markets in the event of a vote to leave later this month. The ECB official said that the pledge would involve opening ‘swap line’ liquidity measures between central banks and commercial banks in the region in order to calm market jitters.
It’s unclear at this stage whether the leaked statement improved economic sentiment by quelling catastrophe fears, or hurt confidence by admitting that a ‘Brexit’ is a serious possibility.
US Dollar
‘Cable’ tumbled to a fresh two-month low yesterday as the safe haven US Dollar benefitted from defensive inflows while Sterling ceded strength on enhanced ‘Brexit’ jitters.
Data from the United States showed that retail sales volumes increased 0.5% unexpectedly in May, beating estimates of 0.3%. The upbeat print bolstered demand for the ‘Greenback’ ahead of this evening’s key Federal Reserve policy announcement.
Although the Fed is not expected to raise borrowing costs in June, there is potential for the US Dollar to rally if policymakers hint that rates could be hiked in future months.
Canadian Dollar
Sterling weakened by around half a cent against the Canadian Dollar yesterday in reaction to the latest EU poll giving the ‘Out’ camp a sizable lead ahead of this month’s referendum. The price to insure against large swings in the Pound rose to its highest since 2008 and this proved detrimental to GBP/CAD, which remained close to the 18-month low struck on Monday morning.
Australian Dollar
The Pound softened by around a third of a cent versus the Australian Dollar yesterday as investors continued to pull out of Sterling ahead of the June 23 EU vote. GBP/AUD could rally this evening if the Fed strikes a hawkish tone but the commodity-correlated ‘Aussie’ could benefit from a dovish message.
New Zealand Dollar
The Pound to New Zealand Dollar exchange rate remained fairly flat yesterday ahead of this afternoon’s dairy auction and this evening’s New Zealand GDP report.
GBP/NZD recently struck its lowest level for a year and Sterling could plunge back to those levels if New Zealand’s most lucrative export rises in value or if domestic growth beats market expectations.
Data Released
23:45 NZD Gross Domestic Product (YoY) (1Q) High 2.6%
09:30 GBP ILO Unemployment Rate (3M) (APR) Medium 5.1%
09:30 GBP Average Weekly Earnings (3M/YoY) (APR) Medium 1.7%
13:00 NZD Dairy Auction Whole Milk Powder MT (JUN 15) High $2,205
14:15 USD Manufacturing (SIC) Production (MAY) Medium -0.1%
19:00 USD FOMC Rate Decision (Lower Bound) (JUN 15) High 0.25%
19:00 USD Federal Open Market Committee Rate Decision (JUN 15) High 0.50%
19:00 USD Fed Summary of Economic Projections High
23:45 NZD Gross Domestic Product (QoQ) (1Q) Medium 0.5%