Sterling
The Pound’s Theresa May relief rally continued yesterday as investors cheered the early anointing of the Home Secretary as Prime Minister. May is due to become PM later today.
Political instability was just one of the issues weighing on Sterling following the vote to leave the European Union, however, that factor has now been removed from the equation and markets have reacted by driving the Pound higher.
Bank of England Governor Mark Caney, who is expected to loosen monetary policy on Thursday, was questioned by MPs yesterday on the bank’s stance on ‘Brexit’ leading up to the referendum. Carney refuted claims he had been told to highlight the risks of leaving the bloc by David Cameron and George Osborne and argued the BoE’s credibility would have been damaged had he not flagged the hazards we are now faced with. The speech had little impact on the Pound because Carney did not give any clues away regarding Thursday’s interest rate decision.
Euro
The Pound to Euro exchange rate rallied by over two cents yesterday in what could easily be the calm before the next storm.
Analysts predict a 25 basis point reduction in the BoE’s benchmark interest rate on Thursday and this could prompt another devaluation of the Pound. Of course, GBP/EUR is not going to suffer losses anywhere near as great as the 11 cents it has lost since the referendum, but it is entirely possible that we could see Sterling strike a new near-three-year low against the single currency if the BoE does in fact slash rates.
Consequently, the Theresa May rally provides an interesting opportunity for those looking to transfer Pounds into Euros ahead of the BoE announcement at midday on Thursday.
US Dollar
Sterling registered an unlikely 240-pip gain against the US Dollar yesterday as investors bought back into the Pound in reaction to news that Theresa May will become the next British Prime Minister later today. The news means there will not be a nine-week period of political uncertainty during the summer leadership contest.
Considering that last Friday’s strong US non-farm payrolls number failed to boost Federal Reserve rate hike bets or bolster the appeal of the ‘Greenback’, it is unlikely that any of this week’s US ecostats will have a major impact on GBP/USD. This leaves Thursday’s BoE rate decision as the primary event to look out for. As previously stated, the UK central bank is expected to cut rates meaning that the Pound could potentially give up yesterday’s gains and fall to fresh three-decade lows by the end of the week.
Canadian Dollar
The Pound to Canadian Dollar exchange rate leaped higher by over two cents yesterday, prompting some analysts to talk of a correction higher in GBP/CAD. However, the potential for Sterling to slide again remains strong due to the Bank of England’s interest rate decision later in the week.
The ‘Loonie’, however, has a rate decision of its own to deal with this afternoon. The Bank of Canada is not predicted to slash rates but if it does the Canadian Dollar could easily depreciate against the Pound.
Crude rallied from a two-month low yesterday but the global supply glut means that oil prices could remain close to or below the US$50 mark for some time yet, potentially weighing on the commodity-correlated currency.
Australian Dollar
The Pound to Australian Dollar exchange rate rallied by 150 pips yesterday, building on GBP/AUD’s 100-pip gains on Monday. The Theresa May rally is currently supporting Sterling but Thursday’s BoE decision remains a roadblock to future gains.
New Zealand Dollar
The New Zealand Dollar slumped by around 200 pips against the Pound yesterday, following the majors lower versus the Pound as one layer of uncertainty was removed in the UK by the news that Theresa May will be the next Prime Minister.
Data Released
15:00 CAD Bank of Canada Rate Decision (JUL 13) High 0.50%
15:00 CAD Bank of Canada Releases Monetary Policy Report High