Sterling
‘Brexit’ anxieties continued to take centre stage yesterday as Sterling stumbled to fresh lows versus some of the majors in reaction to UK Prime Minister Theresa May’s plan to invoke Article 50 of the Lisbon Treaty before the end of March 2017. May appears intent on pursuing a future outside of the single market in order to exercise more control over everything from packaging laws to immigration and spending. The so-called ‘hard Brexit’, or ‘Smexit’, that May looks to be heading for frightens traders because it could make it more difficult for multinationals to do business in Britain and consequently could prompt an exodus of firms across the Channel.
It could have been a rather more cheerful day for the Pound had Theresa May not underlined her plans to begin the UK’s exit process from the EU in the first quarter of 2017 because British data actually printed very strongly. The UK manufacturing PMI jumped from 53.4 to a two-year high of 55.4 as the weaker exchange rate attracted demand for UK exports.
Euro
Sterling suffered a one-cent depreciation versus the single currency yesterday, succumbing to a fresh three-year low in the process, as investors reacted cautiously to news that Britain could well have left the EU by April 2019.
During the evening European Central Bank board member Yves Mersch acknowledged that negative interest rates were making it harder for banks to turn a profit, which was seen by some to suggest that some policymakers at the ECB were turning the page on ultra-loose stimulus. GBP/EUR did not fall further following the statement but, as things stand, the Pound is only a cent away from hitting a five-year low against the Euro.
US Dollar
‘Cable’ slid to its lowest level in almost three months yesterday as traders pulled out of Sterling positions in reaction to UK PM Theresa May’s plans to push for a ‘hard Brexit’ in March of next year. The earlier-than-anticipated date, plus the desire to cut ties completely with the bloc, weighed heavily on Sterling sentiment yesterday, with markets worried that May’s tough stance could lead to a period of economic turmoil as foreign investment flows dry up and international firms relocate to the continent.
The Pound is now just half a cent above the 31-year low it struck against the US Dollar at the beginning of July. Despite the UK economy’s sanguine performance since the referendum, analysts are now predicting that GBP/USD will suffer further losses over the next year. Having hit 1.50 on the eve of the vote, the Pound to US Dollar exchange rate could slide towards 1.20 if these predictions are accurate.
Canadian Dollar
Sterling weakened by around two cents against the Canadian Dollar yesterday to hit its lowest level in over five weeks. A small rise in oil prices contributed slightly to the commodity-sensitive Canadian Dollar’s gains but the main reason for the ‘Loonie’s’ gains was the fear that an early ‘Brexit’ could soften the potential of the British economy to sustain its recent strength.
Australian Dollar
GBP/AUD declined by around two cents yesterday to hit a six-week low as investors bet that the Reserve Bank of Australia would not cut rates in October. Theresa May’s proposal to begin ‘Brexit’ negotiations by the end of the first quarter of 2017 also played a major role in the Pound’s depreciation versus the Australian Dollar.
New Zealand Dollar
The Pound to New Zealand Dollar exchange rate slid by around -160 pips to mark its lowest level in around a fortnight yesterday. The main event to look out for today is the UK construction PMI, which is tipped to remain in the red at 49.0, and the New Zealand dairy auction, which could boost the appeal of the ‘Kiwi’ Dollar if it shows a rise in the value of the nation’s most important export.
Data Released
09:30 GBP Markit/CIPS UK Construction PMI (SEP) Medium 49
NZD Dairy Auction Avg. Winning Price MT (OCT 4) High $2,975