Sterling
Sterling sustained heavy losses on Friday as traders bet that the Pound would remain materially weaker in the aftermath of June’s historic EU referendum. One of the catalysts behind the latest leg of Sterling’s post-‘Brexit’ decline was a statement from Bank of England policymaker Kristin Forbes suggesting that the UK central bank welcomes a weaker domestic currency.
Forbes said: ‘Sterling’s depreciation should improve the UK’s net foreign asset position by over 20% of GDP and that should alleviate concerns by international investors about the UK’s ability to pay its net foreign asset position’.
Meanwhile, BoE Governor Mark Carney held a Q&A session with a group of children in Coventry. The Governor said he prefers The Specials to Skepta or Craig David, admitted to being known as Mark ‘Carnage’ Carney in his youth and claimed Canada could become Britain’s best trade ally after ‘Brexit’.
Euro
The Pound to Euro exchange rate plunged -120 pips to its lowest level in almost a month on Friday as sentiment towards the UK currency was soured by fears that the Bank
of England would continue to loosen monetary policy in order to maintain a weaker domestic currency. Dovish rhetoric from BoE policymaker Kristin Forbes weighed heavily on Sterling as traders fretted over the bank’s potential to maintain loose monetary policy for a long period of time.
European sentiment, in general, was hurt by German Chancellor Angela Merkel’s claim that the European Union is in a ‘critical situation’. EU leaders met in Bratislava to discuss ways to regain trust following ‘Brexit’ and also how to bolster economic growth and respond to the ongoing migrant crisis. The cautionary comments were born out of a desire to move the European project forward but highlighted the negative impact that the British vote has had on the bloc as a whole. The Euro lost ground to the US Dollar on the day but the single currency came out on top against the Pound.
US Dollar
‘Cable’ devalued by around two-and-a-half-cents on Friday to strike its lowest level in over a month.
Sterling was hit by dovish BoE comments while the US Dollar benefitted from a stronger-than-anticipated US inflation report. The August CPI data showed that price pressures accelerated from 0.8% to 1.1% last month, beating forecasts of 1.0%. The ‘Greenback’ strengthened across the board in response to the upbeat print as markets hedged against the threat of the Federal Reserve hiking interest rates in September.
The US central bank meets this week to set monetary policy but the fact of the matter is that most analysts do not expect officials to sanction a tightening of monetary policy at this juncture. This means that we could see a little bit of a rebound in GBP/USD by the end of the week if the Fed remains in wait-and-see mode.
Canadian Dollar
Sterling also weakened by around -250 pips against the Canadian Dollar on Friday. GBP/CAD struck a 10-day low even as crude prices fell and US rate hike bets increased. It seems the market-wide pummeling of the Pound was not going to be halted by anything on Friday.
Australian Dollar
The Pound to Australian Dollar exchange rate followed a remarkably similar trajectory to GBP/CAD on Friday. Sterling slid by around -250 pips to hit its lowest rate for 10 days as BoE easing fears exerted an unflinchingly negative influence over the UK currency. The upbeat US CPI print gave the ‘Greenback’ the edge against the ‘Aussie’, but the news did nothing to dampen the appeal of the Antipodean currency versus the Pound.
New Zealand Dollar
The ‘Kiwi’ Dollar appreciated by over two cents against Sterling on Friday, rising to its best exchange rate for 10 days as BoE stimulus concerns weighed on demand for the Pound.