Sterling
The Pound struck new lows versus most of the majors at the beginning of this week’s session as single market fears continued to depress demand for the UK currency.
Prime Minister Theresa May is due to outline her aims for Brexit on Tuesday in a landmark speech, which many fear could see the PM prioritise immigration controls over tariff-free access to the single market. This view has weighed heavily on Sterling over the last seven days.
An unnamed government source warned the Sunday Times that May’s speech could prompt a fresh drop in the Pound, with the PM likely to lay out plans to pull out of the single market and European customs union.
Investors believe that retention of the single market is vital for Britain’s economic stability, which explains why Sterling plummeted at the beginning of this week’s session. For the Pound to recover, we would need to see Theresa May change tack and assuage so-called ‘hard Brexit’ concerns. At the moment this does not look likely.
Euro
The Pound to Euro exchange rate touched a fresh two-month low on Friday afternoon, with investors showing no inclination to buy into the uncertain future of the UK currency. And GBP/EUR declined by a further -100 pips on Sunday evening following suggestions that Theresa May was planning a ‘hard Brexit’, with the UK breaking away from the EU’s single market and customs union.
Among the concerns surrounding Britain’s exit from the European Union is the fear that an uncertain economic outlook will lead to reduced business investment and subsequently cause jobs growth to slow. Indeed, the Bank of England predicted in November that UK unemployment would surge from the current 11-year low of 4.8% to 5.4% by the end of 2017. However, BoE official Michael Saunders noted on Friday that the central bank now expects the jobless rate to remain below 5.0% this year. The news failed to lift the Pound, however, due to the overarching fear of a ‘hard Brexit’.
US Dollar
‘Cable’ managed to avoid striking any new 31-year lows on Friday but there was little else for holders of Sterling to cheer about. And the UK currency was once more plunged into a sharp downward spiral on Sunday evening as traders reacted to rumours that Theresa May was committed to taking Britain out of the single market. Excluding the ‘flash crash’ at the beginning of October, GBP/USD succumbed to its lowest level for three decades when markets reopened for the week.
The ‘Greenback’ enjoyed a higher-than-anticipated business inventories print of 0.7%, up from -0.1% previously, while retail sales accelerated from 0.2% to 0.6%. The optimistic data set indicated that the world’s largest economy finished 2016 in decent shape and suggests that further rate hikes can be expected from the Federal Reserve – providing President-elect Donald Trump can live up to (at least some of) his pre-election pledges to boost the US economy through a series of fiscal stimulus projects.
Canadian Dollar
Energised by the recent OPEC and non-OPEC agreement to curb oil production in 2017, the commodity-sensitive Canadian Dollar managed to strike a fresh three-month high versus Sterling. Oil prices actually stuttered slightly on Friday but a complete lack of appetite for the Pound meant that the ‘Loonie’ was still able to press ahead.
GBP/CAD tanked -180 pips on Sunday evening to hit its ninth fresh low out of the last 11 sessions.
Australian Dollar
After a series of attempted rallies, the Pound’s mild upward momentum versus the Australian Dollar finally subsided on Friday evening. GBP/AUD temporarily rose by around a cent on two occasions but the pair ultimately closed for the weekend very close to a new November low.
When the markets reopened Sterling tumbled two cents to hit a new two-month low.
New Zealand Dollar
The New Zealand Dollar raced to a new two-month high versus Sterling at the start of this week’s session, appreciating 180 pips, as ‘hard Brexit’ speculation prompted another market-wide pummelling of the Pound.
Data Released
18:30 GBP Carney Speaks at London School of Economics Medium