Sterling
The ‘Brexit’-related Sterling selloff paused yesterday and the Pound managed to recover a little bit of the collateral losses it sustained in the two days of trading since the referendum results were announced.
Nothing positive emerged yesterday so it appears that Sterling’s mini rallies were related to investors locking in profit and should not be taken as a sign that the Pound has bottomed out. There is every chance that Sterling could slide further over the coming days and weeks.
All three of the big ratings agencies downgraded the UK yesterday and Chancellor George Osborne said that tax rises and spending cuts would be necessary to make up for lost revenue as a consequence of the vote to leave the EU. Markets were also unsettled by news that Labour leader Jeremy Corbyn received an overwhelming 172-40 vote of no confidence from his party’s politicians.
Euro
The Pound to Euro exchange rate recovered from a two-year low yesterday but most of Sterling’s morning gains were wiped out by the end of the London session.
European Central Bank President Mario Draghi put the single currency on the back foot during the morning with a speech calling for coordinated central bank policy. Markets interpreted his words: ‘we can benefit from the alignment of policies’ to mean that further liquidity boosting measures were forthcoming the world over. But his statement, which made no direct reference to ‘Brexit’ or stimulus, could actually signal a desire to start removing ultra-loose policy measures in order to prevent stock markets bubbling to unsustainable levels.
While the economic and political uncertainty of Britain’s decision to leave the EU dominates financial markets, the impact of extraneous developments will continue to have only a muted impact on GBP/EUR.
US Dollar
‘Cable’ rose by around a cent yesterday as investors locked in profit from the 31-year low GBP/USD rates seen on Friday and Monday.
The Bank of England reported that UK banks took up £3 billion of emergency liquidity loans yesterday, which gave investors a certain level of comfort seeing as the relatively low number suggested the banking sector was sufficiently insulated from the initial shock of the ‘Brexit’ vote.
Data from the United States showed that US consumer confidence smashed economists’ forecasts of 93.5 with a score of 98.0 in June. However, the survey took place before the UK’s EU referendum and sentiment is likely to have plummeted since last Friday. A separate report showed that initial estimate of US first quarter growth had undersold the performance of the world’s largest economy. GDP was upgraded from 1.0% 1.1%.
Canadian Dollar
Sterling strengthened by a cent against the Canadian Dollar yesterday following a tremendous loss of around 18 cents since the early hours of Friday morning.
Crude oil prices rose 2.5% on the day in response to the threat of union strikes in Norway, which could depress production in the oil producing nation. Norway produces around 2% of the world’s oil and analysts estimate that the planned 7,500 person strike could reduce output by almost 20%.
Australian Dollar
The Pound snapped five days of losses against the Australian Dollar yesterday as the post-‘Brexit’ selloff cooled. There is potential for Sterling to rebound, having plunged 17 cents over the last few days, but the larger likelihood is that supreme economic and political uncertainty will deter investors from buying the UK currency as the dust continues to settle from the historic referendum results.
New Zealand Dollar
The Pound rallied by around a cent against the New Zealand Dollar initially yesterday as investors paused for thought following GBP/NZD’s profound 19 cent losses in the aftermath of the ‘Brexit’ vote. However, demand for the ‘Kiwi’ Dollar picked up during the night when the New Zealand unemployment rate was revised lower from 5.7% to 5.2% in an unscheduled news event that took traders by surprise.
Data Released
13:00 EUR German Consumer Price Index (YoY) (JUN P) 0.1%
13:30 USD Personal Consumption Expenditure Core (YoY) (MAY) 1.6%