Sterling
The Pound fell to new lows versus most of the majors on Friday as Bank of England Governor Mark Carney’s suggestion that interest rates would be cut to soothe the trauma of the ‘Brexit’ vote continued to weigh on demand.
10-year UK Gilt yields dropped to a new record low as investors sought the safety of government debt over other more risky but more profitable investments. The fact that traders are actually paying the government for the privilege of lending it money for three years (3-year yields dropped into negative territory) speaks of the severity of the situation. And the negligible profit margin on these investments helps to explain why demand for Sterling weakened on the currency markets.
In other news, British Chancellor George Osborne backtracked on his plan to achieve a national budget surplus by 2020. Osborne said the shock of voting to leave the EU meant that pursuing a 2020 surplus was not ‘realistic’. Indeed, many analysts had already expressed doubts about the efficacy of the plan, even when it looked like the UK was likely to vote to remain part of the union.
Euro
The Pound to Euro exchange rate tumbled to a new two-and-a-half-year low on Friday as the threat of further stimulus pushed UK government bond yields even lower, thus reducing the appeal of investments denominated in Sterling.
Data from Europe showed that manufacturing activity grew in every country except France, where strike action dampened output last month. The upbeat stats drove the headline Eurozone manufacturing PMI up from 51.5 to a six-month high of 52.8. However, the results were collected prior to the UK’s ‘Brexit’ vote and it is entirely likely that July’s index will soften in reaction to the decision.
It was a similar story for the UK, where factory output data compiled before the referendum results hit a five-month high of 52.1 in June, up from 50.4 in May.
US Dollar
‘Cable’ slid by around half a cent on Friday as the fallout from the ‘Brexit’ vote continued to spook traders out of investing in the Pound.
Federal Reserve policymakers’ opinions differed on how the decision will effect the US economy. Vice Fed Chair Stanley Fischer said the bank was still evaluating the impact of the decision, while St Louis Fed President James Bullard suggested ‘Brexit’ would have ‘possibly zero’ impact on the domestic economy.
It was a clean sweep for manufacturing gains on Friday with the US factory sector following the UK’s and Eurozone’s with a positive report. The headline ISM index printed at a better-than-anticipated yearly high of 53.2.
Canadian Dollar
Sterling plummeted to a new two-and-a-half-year low against the Canadian Dollar on Friday, depreciating by over a cent, as incredibly low yields caused markets to shun the UK currency. Despite being around 20 cents weaker than before the referendum results were announced, GBP/CAD is forecast to fall further over the coming days and weeks.
Australian Dollar
The Pound to Australian Dollar exchange rate succumbed to a new two-year low on Friday but Sterling managed to claw back around 60 pips when markets reopened for this week’s session due to fears regarding political uncertainty down under. The ‘Aussie’ Dollar suffered as a very close vote in the Australian general election stoked concerns of a hung parliament.
New Zealand Dollar
GBP/NZD tumbled almost two cents on Friday to strike a new three-year low as BoE interest rate speculation pushed UK bond yields to record lows and dissuaded traders from buying the Pound.
Data Released
09:30 GBP Markit/CIPS UK Construction PMI (JUN) Medium 50.7
14:30 CAD RBC Canadian Manufacturing PMI (JUN) Medium 52.1