Sterling
A growing fear that the British government may pursue a post-‘Brexit’ future outside of the single market, to allow for greater controls on immigration, put pressure on the Pound yesterday. Recent remarks from UK officials appear to suggest that retaining single market access is not the priority and, indeed, Scotland’s external affairs minister Fiona Hyslop remarked yesterday that after talks with other UK ministers Britain ‘looks as if its heading to a hard Brexit’.
On a more positive note, the Z/Yen Global Financial Centres Index (GFCI), which uses a broad measure of financial indicators, showed that London remains top of the pile in 2016. The capital narrowly beat competition from New York, Singapore and Hong Kong, however, seeing as the survey was compiled before the referendum there is a possibility that London will fall down the rankings next year.
Euro
The Pound to Euro exchange rate tumbled by around a third of a cent yesterday to strike its lowest level in five weeks. GBP/EUR came very close to hitting a three-year low as ‘Brexit’ fears remained a negative influence on the UK currency. The Euro, meanwhile, was boosted by a sturdy German IFO business climate print of 109.5, which beat forecasts of 106.3 and seemed to suggest that German investors were over the initial shock of the ‘Brexit’ referendum result.
Sterling managed to claw back some of its losses during the afternoon as European Central Bank President Mario Draghi urged national governments to do more to support growth in the bloc. The ECB has embarked on a large-scale stimulus programme but growth rates remain soft and inflation pressures tepid within the bloc, leading many analysts to call for additional easing from the bank. Draghi did not promise further action but did leave a little hint that ‘the ECB will do its part’.
US Dollar
‘Cable’ remained close to five-week lows yesterday as negative sentiment regarding the future of Britain outside of the European Union continued to weigh on Sterling.
A report from the British Bankers’ Association (BBA) showed that UK mortgage approvals plunged -21% to a 19-month low in August. The report suggested that uncertainty surrounding the UK’s economic outlook was behind the marked downward shift. The Bank of England recently slashed interest rates to a record low of 0.25% and embarked on a scheme to ensure that commercial banks passed the saving on to customers, but this was not enough to prop-up the mortgage market in August.
Canadian Dollar
Sterling rose by around half a cent against the Canadian Dollar yesterday despite a bounce in crude related to hopes of action at this week’s OPEC meeting. Oil prices jumped 2.5% yesterday afternoon, bolstered by expectations that oil ministers may agree on a cross-border initiative to curb global production and drive the value of ‘black gold’ higher. Despite this optimism, the ‘Loonie’ remained weaker versus the Pound due to wider themes of risk aversion in the markets ahead of next month’s US Presidential election.
Sterling struck a fresh five-week low against the Australian Dollar yesterday, sliding by around three-quarters of a cent as markets continued to chip away at the Pound due to anxiety surrounding Britain’s post-‘Brexit’ trade deal. Investors are concerned that investment patterns will slow due to uncertainty around the deal but also that firms may choose to relocate if officials opt against retaining membership of the single currency.
New Zealand Dollar
The Pound to New Zealand Dollar exchange rate softened by around -150 pips yesterday and technical traders are now predicting that GBP/NZD could slide to another all-time low over the next few weeks.
Data Released
14:45 USD Markit US Services PMI (SEP P) Medium 51.2
15:00 USD Consumer Confidence (SEP) High 98.8
16:15 USD Fed’s Vice Chair Fischer Discusses Economics Medium