Sterling
The Pound depreciated versus most of the majors yesterday to levels that would have represented new lows had it not been for last week’s extraordinary ‘flash crash’.
The growing recognition that Britain is heading for a clean break from both the European Union and the single market is weighing heavily over demand for the UK currency at the moment. The fear is that without access to the single market foreign investment will slow and Britain’s large current account deficit will balloon to unsustainable levels. Indeed, Sterling’s trade-weighted index sank to a seven-and-a-half-year low yesterday and market futures show a record number of speculators are betting on the Pound to devalue further over the coming weeks and months.
Euro
The Pound to Euro exchange rate remained relatively flat for most of yesterday’s session. Even though Sterling is now trading at its worst level against the single currency since 2010, the consensus is that GBP/EUR has further to fall in the foreseeable future.
The only economic release of import today is the Eurozone ZEW investor sentiment survey, which printed at 5.4 last time out. However, it would take a wildly stronger or weaker than forecast figure to make an impact on GBP/EUR at the moment because traders are so heavily focussed on the concept of ‘Brexit’ and what it might mean for the economies and currencies of Europe.
US Dollar
‘Cable’ tumbled by over half a cent yesterday as ‘hard Brexit’ anxieties spooked markets out of Sterling positions. The safe haven US Dollar absorbed defensive inflows across the Atlantic while bets that the Federal Reserve would raise interest rates in December also continued to prop-up the ‘Greenback’.
Forgetting last week’s -10% flash plunge, GBP/USD is trading at its lowest level since 1985. Significant support levels have collapsed over the past 10 days and the outlook remains bleak. It is entirely possible that ‘Cable’ could shed a further four cents over the next few months, especially if Fed policymakers keep the door open to a December hike and UK officials keep the door closed to retention of the single market.
Canadian Dollar
In addition to perceived dire consequences of a potential ‘hard Brexit’, the Pound weakened against the Canadian Dollar yesterday due to an uptick in oil prices. Crude jumped 2.5% to a yearly high as Russian President Vladimir Putin threw his support behind OPEC’s decision to curb output in order to drive oil prices higher: “We support the recent OPEC imitative to set production limits”, said Putin. The positive oil development helped push the commodity-correlated ‘Loonie’ higher by over two cents.
Australian Dollar
The Pound to Australian Dollar lost another -150 pips yesterday as markets continued to hammer the Pound ahead of an expected clean cut from the EU and the single market by March 2019.
New Zealand Dollar
Sterling remained fairly flat against the New Zealand Dollar yesterday, hovering above the all-time low that GBP/NZD struck during the ‘flash crash’ last week. So long as Federal Reserve officials do not significantly ramp up talk of a near-term US rate hike this week, it is possible that we could see the Pound soften further versus the ‘Kiwi’ Dollar.
Data Released
10:00 EUR Euro-Zone ZEW Survey (Economic Sentiment) (OCT) High 5.4
13:15 CAD Housing Starts (SEP) Medium 190.0k