UK businesses welcome Sterling rally following latest Brexit polls, US housing data weaker than expected
20/Apr/2016 • Currency Updates•
This summer’s EU referendum continues to be the main driver behind Sterling movements. The Pound strengthened across the board on Tuesday after opinion polls, released by ICM and ORB late on Monday, showed solid leads for the ‘in’ campaign, by a sizable 8% and 11% respectively.
This represents a distinct drift in support towards the vote to remain in the EU following a string of polls over the past few weeks which suggested the vote may be too close to call.
The Pound mostly overlooked comments from Bank of England Governor Mark Carney yesterday. Speaking at the Economic Affairs Committee hearing, Carney reiterated that a Brexit could lead to an extended period of uncertainty for the UK economy.
Carney stressed that the Bank would use all the necessary tools to achieve its inflation target, regardless of the outcome of the EU referendum. He also clarified that the Bank has no appetite for negative interest rates, unlike those that have been implemented in the Eurozone and Japan.
Our consensus is that the Pound will continue to strengthen, with short-term volatility following announcements and polls regarding the EU referendum. This should be good news for GBP sellers, while costs for GBP buyers may increase.
Across the Pond, weak housing data in the US sent the Dollar lower yesterday. The Greenback sank against the Euro and fell to multi-month lows against a number of commodity-dependent currencies after a further rebound in oil prices increased appetite for riskier assets. Oil prices continue to shrug off the failure of global producers to agree an output freeze on Sunday, with brent crude approaching a one-week high on Tuesday.
The commodity-driven Russian Ruble, South African Rand, Norwegian Krone and New Zealand Dollar all gained in excess of 1% against the US Dollar, which closed in on its weakest position against its major peers in eight months.
Today the focus among major currencies will be the UK’s monthly labour report. Average wage growth, a closely watched indicator by the Bank of England for labour market strength, is expected to remain comfortably in excess of 2%, while unemployment is forecast to remain unchanged at 5.1%.
Major currencies in detail:
The Pound ended 0.5% higher against the US Dollar yesterday, rallying to its strongest position since the beginning of April.
With no economic data out yesterday, all attention in the UK was on Mark Carney. However, with little new information released, the Pound was barely changed following his comments.
Aside from warning about the possible negative effects of a Brexit, Carney also highlighted the challenges posed by the UK’s remarkably high current account deficit and the economic slowdown in China.
On the topic of monetary policy, Carney reiterating that the Bank had no appetite for negative interest rates, although it would consider a move closer to zero, if required.
Better-than-expected Eurozone confidence data gave the single currency a boost on Tuesday, ending 0.3% higher against the US Dollar.
The closely watched ZEW sentiment index rebounded from its recent lows, rising to 21.5 in April from last month’s dire 10.6 level. Concerns regarding a possible Brexit and a China-induced global economic slowdown continue to weigh on confidence in the Euro-area, which remains substantially lower than this time last year.
Euro traders overlooked yesterday’s weak construction figures. Construction growth decelerated to just 2.5% in the year to February following January’s near-two-year high.
All attention this week will be on Thursday’s ECB meeting. Producer prices in Germany this morning are not expected to rock the boat, with Euro movements today likely to be driven by factors elsewhere.
Weak economic data and an improvement in sentiment for emerging market currencies sent the US Dollar 0.3% lower against its major peers on Tuesday.
US housing starts and building permits both plunged yesterday, reaffirming expectations that the Federal Reserve will remain cautious on the pace and timing of future interest rate hikes.
Housing starts, which measure the number of new single family homes under construction, fell unexpectedly to a five-month low of 1.09 million, while the number of building permits issued last month fared even worse, plunging to a one-year low.
The economic calendar remains light in the US today, with mortgage applications and home sales figures unlikely to cause much volatility in the US Dollar.
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