Sterling
The Pound suffered steep losses yesterday afternoon when a spokesperson for the Prime Minister said Theresa May would be giving a speech next week on her plans for leaving the European Union.
Although no further information has been released at this stage, traders opted to sell Sterling on the news because since taking office May’s comments have usually been interpreted as bearish for the UK currency. Only last weekend the PM said that Brexit was not about keeping ‘bits of EU membership’, which brought about another leg lower in Sterling’s post-Brexit depreciation, due to fears that May was planning to forfeit tariff-free single market access in exchange for greater controls on immigration.
Euro
The Pound to Euro exchange rate slid by almost a cent yesterday afternoon on fears that UK PM Theresa May’s Brexit plans would not put retaining full access to the EU single market as a top priority.
Across the Channel in the Eurozone, industrial production smashed expectations of 1.5% with a robust November expansion of 3.2%, which also boosted the appeal of the single currency slightly. The minutes from the European Central Bank’s latest meeting
revealed that policymakers were split on whether to extend the bank’s stimulus programme in December, with some officials voting to bring about an end to the quantitative easing scheme. However, despite this hawkish development the overall tone of the report was fairly neutral owing to the lack of core inflationary pressures.
US Dollar
Sterling tumbled back towards weak levels in the region of a 31-year low against the US Dollar yesterday. The catalyst for GBP/USD’s latest plummet was the announcement that UK PM Theresa May was planning to unveil her Brexit strategy next week, which most analysts speculated would include stricter controls on immigration.
EU leaders have repeatedly claimed that if Britain does not agree to the rules of the common market, which include the free movement of people, then it would not be granted full tariff-free access. Investors believe that trade between the UK and the EU could decline if tariffs are imposed. Subsequently, demand for the Pound has decreased whenever government ministers have hinted that immigration would be prioritised over the single market.
Although a rebound is possible because ‘Cable’ is trading close to technical support, ecostats due for release this afternoon bode well for the ‘Greenback’. Retail sales are set to rise from 0.1% to 0.7% and consumer confidence is tipped to rise from 98.2 to 98.5.
Canadian Dollar
The Pound to Canadian Dollar exchange rate skidded to its lowest level in almost three months yesterday as fears of a so-called ‘hard Brexit’ intensified. For its part, the commodity-sensitive ‘Loonie’ was bolstered by another day of gains in the oil market, with crude prices benefitting from Saudi Arabia’s recent decision to cut production to a two-year low.
Australian Dollar
Sterling succumbed to a fresh two-month low versus the Australian Dollar yesterday after declining over -150 pips on ‘hard Brexit’ fears ahead of Theresa May’s speech next week. Demand for the ‘Aussie’ was also boosted by an uptick in one of its most important exports – iron ore. Iron prices have soared recently on hopes that Chinese authorities will shut down illegal furnaces, thus reducing supply to the market.
New Zealand Dollar
The Pound’s woes were completed yesterday by a -250 pip depreciation against the New Zealand Dollar. The high-beta ‘Kiwi’ struck a fresh two-month high and technical indicators now hint that GBP/NZD could have further to fall.
Data Released
13:30 USD Advance Retail Sales (DEC) High 0.7%
15:00 USD U. of Michigan Confidence (JAN P) High 98.5