- Positive UK Data Prints Insulate Previously Falling Sterling – Unexpected wage growth and falling unemployment bolster the Pound.
- Sterling Volatility Remains Just Below 30% – The never-before-seen levels are expected to continue until after the referendum.
- European Stocks Recover from 5-Month Low – Stoxx Europe 600 Index saw lowest levels since February.
- Analysts Watchful for Tomorrow’s Central Bank Announcements – The events themselves expect to hold little sway, instead eyes will be on language used by both the BoE and ECB.
Pound on Top Following Today’s BoE Warnings
While the Pound Euro exchange rate dipped before the Bank of England’s interest rate decision, the pairing rallied following the publication of minutes from the gathering. This was because comments from the BoE’s accompanying meeting minutes suggested that the ramifications of a ‘Brexit’ will be far reaching which is seen to be supportive of the ‘Remain’ campaign.
According to The Wall Street Journal:
‘A vote in favor of leaving the European Union in the UK’s referendum on membership next week could adversely affect the global economy, the Bank of England said Thursday, in its latest assessment of the potential consequences of a British exit from the 28-member bloc.’
The GBP/EUR exchange rate was trending in the region of 1.2648 following the BoE announcement.
(Previously updated 13:27 16/06/2016)
Euro Climbs After Fed Decision
The Pound Euro exchange rate fell back to trending in the region of 1.25 following the Federal Reserve’s decision to leave interest rates on hold.
While the decision had been widely expected, the US Dollar still fell on the news, pushing the Euro higher across the board in the process.
The Fed lowered growth forecasts but stated:
‘The pace of improvement in the labor market has slowed […] economic activity will expand at a moderate pace and labor market indicators will strengthen.’
Meanwhile, the Financial Times stated:
‘In a sign of greater caution on the committee, Esther George, the Kansas City Fed chief, dropped her previous dissenting call for higher rates. Until recently a number of Fed rate-setters have been signalling they want to see another rate rise as soon as this month, but Janet Yellen, the Fed chair, stressed in early June that the Federal Open Market Committee had to weigh a range of uncertainties and risks as it gauged when to move.’
(Previously updated 16:00 15/06/2016)
Yesterday the Pound Euro exchange rate felt downward pressure as the latest TNS poll gave the ‘Leave’ campaign a 7 point advantage over ‘Remain’.
Strong UK data prints this morning reinforced the Pound as it rebounded after the huge slide coming out of the weekend. The unemployment rate decreased past estimates and the report indicated an unexpected level of wage growth.
The Pound to Euro exchange rate did experience a slight bump yesterday as a fall in European stocks across the board panicked Euro traders, but overall it has been a very shaky week for both currencies.
Currently GBP/EUR sits at an exchange rate of 1.2655 Euros to the Pound, gaining approximately 0.5% throughout this morning.
Pound Sees Slight Boost after Battering by ‘Brexit’ Bets
The surprise positive data prints from the UK could not have come at a better time as the Pound struggles to regain its footing after being brutalised by polls over the weekend.
A decrease in jobless claims, the figure lowering by roughly 400 against a forecast increase of 6400, and a 0.1% decrease within the unemployment rate served to insulate the Pound against the ever-mounting ‘Brexit’ panic somewhat.
Average weekly earnings resisted a foreseen slide of 0.3%, resting at a healthy 2.0%, which could point towards an increase in consumer confidence within the UK’s economy.
Other factors such as the European Court of Justice’s ruling on allowing the UK to cap migrant child benefits have affected the Pound in a positive fashion as an opposite verdict would have been a hearty boost to the ‘Leave’ campaigners.
Sterling’s short term volatility continues to track at an unprecedented 29% with traders still seeking expensive insurance against further swings.
European Stocks Regain Ground Following Death-by-Poll
It was a grim start to the week for the European stock market due to the ‘Brexit’-based miasma of panic and doubt starting to waft into Europe.
With the vote less than a week away, the furore on both sides is reaching a fever pitch, becoming loud enough to have a seriously tangible impact on stocks the world over.
The Stoxx Europe 600 index saw its lowest point since the announcement of the referendum date in February last week but has managed to scrape its way up since the start of the week as Eurozone data printed favourably.
Overall industrial production for the Eurozone saw a tangible increase both month-on-month and year-on-year for April, absolutely smashing the rather conservative forecasts. Eurozone employment change also dashed expectations seeing an increase from 1.1% to 1.4% year-on-year. The monthly figure managed to dodge a forecast 0.2% decrease.
These figures show the Eurozone is managing to keep its head above water somewhat amid the trauma of the UK’s upcoming ‘Brexit’ vote and the weak economies of a number of member states.
GBP/EUR Forecast Lies within BoE, ECB Central Bank Rhetoric
With the UK’s vote on its EU membership less than a week away now, eyes will be on the general sentiment surrounding the referendum. Tempered by polls, key figure’s speeches and market reports, the rhetoric has varied wildly from pro-EU to pro-‘Brexit’ – usually triggering Sterling movement. We can expect to see more movement for the Pound as the date approaches as figures on both side of the debate will scramble to affect public opinion.
The Bank of England (BoE) is not expected to raise or lower its benchmark rate tomorrow, affording little movement for GBP either way. However, eagle-eyed analysts will be scouring the minutes of the announcement in hopes of discerning whether the bank is adopting a hawkish or dovish outlook.
In Europe, the European Central Bank is due to release its economic bulletin tomorrow. Similar to the BoE’s announcement, analysts will also be looking at the language of the ECB to determine its outlook.
The only Eurozone ecostat of note for the rest of the week happens to be tomorrow’s inflation report. If the data prints positively the Euro may be afforded a small boost.