Sterling
Sterling stabilised on Friday following another week of sizable losses. However, the main event on the calendar this week is the Bank of England’s interest rate decision for July, which many traders think could see Governor Mark Carney slash interest rates to help ease the pain of ‘Brexit’. If the BoE does cut rates then the Pound could easily find itself depreciating again versus the majors this week.
Friday’s data showed that UK consumer confidence dropped at its fastest rate for 21 years following the ‘Brexit’ vote, with GfK’s index sliding from -1 to -9. While the British trade deficit widened £0.5 billion to £9.9 billion as exports fell more sharply than imports. Markets were generally insensitive to the soft data, as BoE expectations and ‘Brexit’ questions remained in focus.
Euro
The Pound to Euro exchange rate ticked higher by around half a cent on Friday but still found itself around two cents lower on the week.
Credit rating agency Moody’s warned that the biggest threat to Europe was not the weakening of the British and Eurozone economies following the UK’s decision to leave the bloc. Rather, they suggested that the historic vote could bolster nationalistic movements and stoke Euroscepticism in other European nations. Protectionist movements of this nature could lead to the unravelling of the bloc and potentially reverse decades of globalisation and hurt Europe’s long-term growth prospects.
So far GBP/EUR has shed 14 cents since the vote but some analysts have warned that, if nationalistic movements do strengthen in the wake of the decision, it is the single currency that could suffer in the long run as the Euro enters another existential crisis.
US Dollar
Data showed that the US economy added a stonking 287,000 new jobs in June, massively outperforming May’s dismal (and downgraded) 11,000 figure. The upbeat report conveyed a positive trend for job creation in leisure and hospitality, social assistance, health care and the financial sector. However, investors noted that the Federal Reserve would probably remain on the sidelines through 2016 in order to assess the impact of ‘Brexit’ rather than risk hiking rates and aggravating another credit crisis.
Sterling rose by around 70 pips against the ‘Greenback’ on Friday but the likelihood of further losses persists and Thursday’s BoE announcement could easily trigger another bout of selling pressure.
Canadian Dollar
The Pound to Canadian Dollar exchange rate strengthened by around half a cent on Friday as Sterling sellers paused for thought following a tumultuous two weeks of trading. GBP/CAD is around 22 cents weaker following the publication of the EU referendum results.
Domestic data showed that Canadian unemployment fell unexpectedly from 6.9% to 6.8% in June but the figure failed to lift the ‘Loonie’ because it was largely influenced by a drop in the participation rate. Details from the report showed that a 39,400 rise in part-time jobs was offset by a worrying 40,100 dip in full-time positions.
Australian Dollar
Sterling tumbled by around a cent against the Australian Dollar over the weekend in reaction to Prime Minister Malcolm Turnbull’s declaration of victory in the recent general election. Vote counting stretched for eight days and during this time some investors had pulled out of the ‘Aussie’ Dollar due to fears that the tight vote would not yield a clear winner. However, Turnbull’s coalition is now expected to hit the 76 seat mark required to hold a majority government and the local currency appreciated in response. GBP/AUD struck its lowest level since November 2013.
New Zealand Dollar
The Pound to New Zealand Dollar hit a new three-year low on Friday as ‘Brexit’ concerns continued to weigh on demand for Sterling and a hawkish shift in Reserve Bank of New Zealand expectations bolstered the appeal of the high-beta ‘Kiwi’.