Sterling
The Pound suffered sizable losses versus most of the majors yesterday as broad ‘Brexit’ concerns weighed on sentiment. Traders said there was no one catalyst behind the latest leg of Sterling’s post-referendum slide. Moreover, it was a combination of fears regarding the economic outlook and the possibility of additional stimulus from the Bank of England.
The Pound mounted a mini recovery at the start of September but the wheels appear to have come off the Sterling bandwagon again and markets are fretting over the prospect of British leaders opting for a hard ‘Brexit’. Recent rhetoric from politicians has suggested that the UK may give up access to the single market in order to rein-in immigration – something which investors are not best pleased about.
Euro
The re-emergence of ‘Brexit’ fears helped drag the Pound to Euro exchange rate down to a monthly low yesterday.
Sterling’s woes were exacerbated by comments from the Bank of England’s newest policymaker, Michael Saunders, who said that soft wage growth proved there was still slack in the UK economy. Saunders also mentioned that he would back further rate cuts if the unemployment rate were to rise. Markets are betting that the UK central bank will slash rates in November and this dovish outlook means that the Pound could struggle to claw back its recent losses versus the single currency.
US Dollar
‘Cable’ tumbled by over half a cent yesterday to strike its lowest level in almost five years. Sterling was hurt by BoE easing concerns, while the US Dollar saw demand surge ahead of this evening’s highly awaited Federal Reserve policy announcement.
The market consensus is that the US central bank will vote to leave policy unchanged in September, however, demand for the ‘Greenback’ remains strong because many analysts are predicting a hawkish statement of intent. It is anticipated that the Fed will pave the way for an eventual tightening of monetary policy in December, or maybe even November.
At the beginning of the year the Fed forecast four separate rate hikes in 2016, but fast-forward nine months and investors are not even guaranteed one. GBP/USD could depreciate to a new three-decade low if the Fed announced an unexpected rate hike, while ‘Cable’ could strengthen if policymakers fail to inspire confidence in their ability to raise rates before the year is out.
Canadian Dollar
The Pound to Canadian Dollar exchange rate plummeted a cent to hit a three-week low yesterday as negative Sterling sentiment proliferated. The commodity-sensitive ‘Loonie’ gained a little bit of a boost from a rise in oil prices, but the main driver behind the GBP/CAD decline was a market-wide move to sell Sterling.
Australian Dollar
The Pound tanked to a monthly low against the Australian Dollar yesterday, weakening by around 120 pips as BoE easing bets and ‘Brexit’ concerns clouded the UK outlook. Additionally, the high-beta ‘Aussie’ Dollar garnered support following a positive message from the latest Reserve Bank of Australia minutes report. The minutes revealed that RBA policymakers are comfortable with the recent slowdown in business investment and do not expect to slash rates again unless domestic data deteriorates further.
New Zealand Dollar
The Pound to New Zealand Dollar exchange rate crashed to a probable all-time low yesterday. The deadly combo of BoE easing bets and a decent New Zealand dairy auction helped push GBP/NZD to its deepest trough on record. Dairy prices rose 1.7% at the latest auction, while sentiment towards the ‘Kiwi’ was also bolstered by expectations that the Reserve Bank of New Zealand will refrain from cutting rates again at this evening’s rate-setting meeting.
Data Released
09:30 GBP Public Sector Net Borrowing (Pounds) (AUG) Medium 10.4b
19:00 USD FOMC Rate Decision (Upper Bound) (SEP 21) High 0.50%
19:00 USD FOMC Rate Decision (Lower Bound) (SEP 21) High 0.25%