Sterling
The Pound weakened considerably against all of its major currency peers yesterday in response to a statement from Bank of England Governor Mark Carney paving the way for further stimulus this summer.
Carney said that, due to the ‘Brexit’ vote, the ‘economic outlook has deteriorated and some monetary policy easing will likely be required over the summer’. Analysts now expect the BoE to cut interest rates and restart the quantitative easing programme in August. Some even predict that Carney could start slashing rates at the bank’s July meeting next week.
Sterling suffered as UK 2-year government Gilts entered negative territory for the first time ever, and 10-year yields remained at all-time lows below 1%. The fact that investors accepted such low profit margins suggests they are expecting negligible growth and interest rates over the next few years.
Euro
The Pound to Euro exchange rate slumped by around a cent yesterday afternoon in response to BoE Governor Mark Carney’s assertion that further stimulus would be forthcoming in order to prop-up the UK economy.
UK GDP printed at an annualised rate of 2.0% for the first quarter, as expected. And Eurozone consumer prices rose from -0.1% to +0.1% in June. But neither ecostat had much of an impact on GBP/EUR because the ‘Brexit’ vote is likely to materially alter both the UK and European economies for the foreseeable future. British growth is projected to grind to a halt over the next six months and most analysts predict the UK will slide back into recession during the first half of 2017. The Euro’s recent gains against the Pound mean that price pressures could tumble in the currency bloc as imports from the UK become cheaper, thus driving consumer prices lower.
US Dollar
‘Cable’ depreciated by around a cent yesterday following Governor Mark Carney’s statement on monetary policy. At a time when both the UK’s two largest political parties have descended into farcical disarray, the Bank of England has shown a clear contingency plan and this has prevented the crisis escalating further. UK stocks rallied following Carney’s announcement but, understandably, the Pound suffered as traders geared up for even less profit on investments denominated in Sterling.
During the day yesterday Tory frontrunner Boris Johnson took himself out of the leadership contest in response to Michael Gove’s announcement that he was going to run. It now looks like a two-horse race between Theresa May and Michael Gove. Labour credibility suffered another blow as leader Jeremy Corbyn spoke at an anti-Semitism conference and upset some with comments that could be construed as comparing the state of Israel to ISIS.
Canadian Dollar
Statistics Canada reported that Canadian gross domestic product inched up for the first time in three months during April but analysts do not expect the economy to maintain positive growth due to the Alberta wildfires, the quick exit of the Canadian teams from the NHL playoffs and the global risk-sapping ‘Brexit’ vote. Nevertheless, Canadian GDP rose 0.1% on a monthly basis in April and the ‘Loonie’ strengthened by around 120 pips versus the downtrodden Pound.
Australian Dollar
Sterling softened by around 150 pips against the Australian Dollar yesterday as stimulus bets drove the value of the UK currency lower. The Pound to Australian Dollar exchange rate briefly touched a new 21-month low in reaction to the news.
New Zealand Dollar
The Pound plummeted to a new three-year low against the New Zealand Dollar yesterday as stimulus bets wiped two cents from GBP/NZD.
Data Released
09:30 GBP Markit UK PMI Manufacturing s.a. (JUN) Medium 50.1
10:00 EUR Euro-Zone Unemployment Rate (MAY) Medium 10.1
15:00 USD ISM Manufacturing (JUN) High 51.3