Sterling
The Pound gave back some of its recent gains on Friday as traders fretted over an article on Bloomberg suggesting that Britain is preparing to invoke Article 50 of the EU Lisbon Treaty in the first half of 2017. Analysts fear that an early exit from the European Union will lead to greater economic damage because the UK will have less time to prepare for the event.
Data showed that the government ran a surplus of £1.5 billion in July as a second wave of self-assessment tax payments and quarterly corporation tax receipts brought public sector borrowing out of the red. However, July is traditionally a good month for tax receipts and the figures actually underwhelmed estimates of £2.2 billion so there is every chance that the government will return to deficit in August.
Euro
The Pound to Euro exchange rate tumbled by around half a cent on Friday in reaction to speculation that Britain may trigger a two-year exit process from the European Union next April. Markets had previously expected the UK to wait until the end of 2017 to invoke Article 50. A spokesperson for Theresa May issued a statement indicating that the British Prime Minister does not recognise the media reports, however, the rumour still weighed on demand for Sterling.
There were no significant European data releases on Friday and there are none due during today’s session.
US Dollar
‘Cable’ depreciated by around 80 pips on Friday as ‘Brexit’ concerns dragged on demand for Sterling. The US Dollar, meanwhile, benefitted over the weekend from hawkish remarks from the Federal Reserve.
Fed Vice Chairman Stanley Fischer gave an upbeat assessment of the US economy, stating: ‘we are close to our targets’ of full employment and 2.0% inflation. Although Fischer did not explicitly give the nod to a near-term rate hike, many analysts interpreted the senior Fed official’s positive sentiments as a sign that rates could be raised again before the end of the year. The ‘Greenback’ rallied following the statement, however, investors may hold off on any major moves until after Fed Chairwoman Janet Yellen’s keynote speech on Friday at the Jackson Hole Symposium.
Canadian Dollar
Data on Friday showed that Canadian consumer prices decelerated from 1.5% to 1.3% in July and that retail sales volumes shrank -0.1%. The lower-than-forecast numbers provided a conundrum for traders who were keen to invest in the commodity-sensitive ‘Loonie’ due to the recent rally in crude. Oil prices are now around 22% higher than their August low.
Overall, the Pound to Canadian Dollar exchange rate remained fairly flat over the weekend as the positive impact of higher commodity prices was nullified by the negative impact of weak domestic data prints.
Australian Dollar
Sterling rose then fell by around a cent against the Australian Dollar on Friday. It seems the Pound was unable to sustain its strong form – derived from better-than-anticipated UK retail sales numbers, which gave traders hope that Britain may avoid falling into a post-‘Brexit’ recession this year – on Friday afternoon due to speculation that the government could trigger Article 50 and start the two-year EU exit process as soon as next April.
New Zealand Dollar
Sterling extended its ‘Brexit’ related losses against the New Zealand Dollar on Friday, weakening by around half a cent. The best hope for GBP/NZD to mount any kind of significant rally this week is Friday’s highly anticipated speech from the Fed’s Janet Yellen. If the US central banker opts to strike a hawkish tone then we could easily see a bit of a shift in risk appetite away from volatile currencies such as the ‘Kiwi’ Dollar.