Sterling
Despite efforts from British Chancellor George Osborne to calm market fears and comments from prominent ‘Brexiteer’ Boris Johnson suggesting markets were ‘stable’, the Pound suffered further depreciations across the board yesterday.
Osborne said that the UK economy ‘is as strong as it could be to confront the challenge’ of exiting the EU, while Boris erroneously suggested that ‘pensions are safe, the Pound is stable and markets are stable’. However, the FTSE has now shed £85 billion since the referendum results and the Pound has fallen 18 cents against the US Dollar, meaning that in US Dollar terms the UK stock market has slumped 16% in that time.
Although Bank of England Governor Mark Carney has not yet suggested it, traders are now pricing in a BoE rate cut by the end of the year and this is piling even more pressure on the Pound.
Euro
Sterling shrank by around three cents against the Euro yesterday to strike a new two-year low.
In addition to the uncertainty of how a post-‘Brexit’ Britain will trade with the world and how the UK economy will perform, investors are concerned by internal fighting in Britain’s two largest parties.
Prime Minister David Cameron has resigned and the Conservative party is seeking to elect a new leader by September 2. Boris Johnson looks to be one of the favourites but some members of the party feel he betrayed former ally Cameron by backing the ‘Leave’ campaign.
Opposition leader Jeremy Corbyn has vowed to stay on, and fight to be re-elected if necessary, despite witnessing 23 out of 31 of his shadow cabinet members resign since the referendum. The mutineers claim Corbyn is not the man to take the fight to the Tories in the next general election, which some think could take place within 12 months.
US Dollar
The Pound to US Dollar exchange rate lost another four cents yesterday as investors pondered over the economic and political consequences of the ‘Brexit’ vote.
‘Cable’ is currently around 18 cents worse off than it was on Thursday evening and is trading at its lowest level since 1985. The ‘Greenback’ is benefitting from its status as the business currency of the world and could easily continue to strengthen versus the downtrodden Pound. Analysts suggest GBP/USD could yet decline by another 5-10 cents over the coming days and weeks.
Conversely, there is an argument to suggest that Sterling’s sharp falls could have been overdone. This is because GBP/USD trade volumes last week were the lowest for five weeks, which could have exacerbated Sterling’s plunge.
Canadian Dollar
The Canadian Dollar rallied by around five cents to reach another two-and-a-half-year high against the Pound yesterday. However, the risk-correlated ‘Loonie’ found itself on the losing side against most of the majors as markets, gripped by risk aversion, opted to park their funds in the traditional safe havens of the US Dollar, the Japanese Yen and the Swiss Franc.
Australian Dollar
The Pound to Australian Dollar exchange rate tumbled by around three cents to touch a 21-month low yesterday as the market wide sell-off in Sterling continued. It’s difficult to predict just how far the Pound could slide on the currency markets but its important to note that GBP/AUD has already fallen by 26 cents since the start of the month.
New Zealand Dollar
Sterling sank by another three cents to strike a three-year low against the New Zealand Dollar yesterday as political and economic uncertainty weighed heavily on the UK currency following the nation’s decision to leave the European Union.
Data Released
09:00 EUR ECB President Draghi Speaks in Sintra, Portugal Medium
09:00 EUR EU Parliament to Vote on Resolution on U.K. Referendum High
10:00 GBP BOE Holds Third Additional ITLR Operation Around EU Referendum Medium
13:30 USD Gross Domestic Product (Annualized) (1Q T) Medium 1.0%
15:00 USD Consumer Confidence (JUN) High 93.4
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