Sterling
Sterling lost ground against most of the majors at the end of last week’s session as ‘Brexit’ fears crept back into the Pound’s path following comments from British foreign secretary Boris Johnson.
Johnson made traders anxious with talk of beginning Britain’s divorce process from the European Union early next year. He said that it could take less than two years to
negotiate a deal and claimed it was ‘complete baloney’ for the EU to suggest that a nation could not retain access to the single market without accepting free movement of people.
European leaders said they were ‘used to respecting foreign ministers a lot’, and offered to visit Johnson in London with a copy of the Lisbon Treaty to clear up the matter. Sterling’s decline appears to reflect fears that Johnson’s peculiar style of communication may not prove successful in negotiating the kind of post-‘Brexit’ trade deal that most investors would like. In order to keep the UK’s swelled trade balance in check, markets would prefer Britain to remain part of the single market.
Euro
The Pound to Euro exchange rate fell by over a cent to strike a monthly low on Friday as fears of an early and messy ‘Brexit’ prompted a renewed bout of Sterling selling. GBP/EUR is now only around half a cent higher than the three-year low that Sterling tumbled to following the Bank of England’s decision to slash interest rates and restart its quantitative easing scheme at the start of August.
Data from Europe showed that private sector output slumped to its lowest level for 20-months during August, with the composite PMI sliding from 52.9 to 52.6. The slower pace of growth married with the currency bloc’s chronic lack of inflationary pressures suggests that the European Central Bank may be moved at some point to loosen monetary policy even further. However, the single currency was not damaged by the data print in relation to the Pound on this occasion.
US Dollar
Sterling stumbled to a new five-week low versus the US Dollar on Friday, devaluing by around a cent as Boris Johnson’s ‘Brexit’ comments weighed on the UK currency.
The Pound’s woes meant that the ‘Greenback’ escaped unscathed from a manufacturing PMI result of 51.4, which undershot the median market consensus of 52.0. Despite the slowdown, longer-term forecasts remain sturdy and job creation improved last month, so traders refrained from hitting the panic buttons. In addition, the US Dollar appeared to receive a little bit of a boost as the impact of the Federal Reserve’s decision not to raise rates on Wednesday evening wore off.
Canadian Dollar
The Pound plunged lower by around two cents against the Canadian Dollar on Friday morning as ‘Brexit’ fears mounted. However, Sterling had recovered all of its losses versus the ‘Loonie’ by the end of the day in reaction to some underwhelming ecostat prints in Canada. Retail sales volumes came in at -0.1%, missing forecasts of +0.1% and the nation’s consumer price index printed at 1.1%, disappointing hopes of a 1.4% figure. The downbeat results were seen to increase the probability of additional easing from the Bank of Canada.
Australian Dollar
GBP/AUD succumbed to a new five-week low on Friday as jittery traders sold the Pound on concerns that Boris Johnson’s brazen negotiation tactics could prevent Britain retaining access to the single marker post-‘Brexit’. Sterling softened by around -75 pips against the ‘Aussie’.
New Zealand Dollar
The Pound managed to register gains of around a third of a cent against the New Zealand Dollar when markets reopened for this week’s session on Monday morning as traders prepared for a potential rate cut from the Reserve Bank of New Zealand in November.
Data Released
09:00 EUR German IFO – Business Climate (SEP) Medium 106.3
15:00 USD New Home Sales (MoM) (AUG) Medium -8.3%