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July 2016

Sterling slips on BOE and property fears

Published: Wednesday 06 July 2016

  • Sterling slips on BOE and property fears
  • USD strengthened by safe haven flows
  • Fed minutes will be searched for rate hike clues

When I look at the news of the last 48 hours and the headline seeking comments of so many analysts, I am reminded of Paul Samuelson's comment that “Wall Street indexes predicted nine out of the last five recessions”. He said that in 1966. I believe analysts are much the same; no one, it seems, wants to read a headline that says things will be OK, so the 'we're all doomed' quotes get the most prominence.
Undoubtedly markets are as nervous as a barefoot man in a drawing pin factory. Gold is rising as investors seek safety, as are the US Dollar and Yen. The Euro is also stronger which seems odd when the EU is at the centre of the controversy causing all the nervousness but that is likely to correct. A story about property investment funds that cannot release investor monies until they can sell the properties is being hyped as the portent of doom that it probably isn't. The Governor of the Bank of England announced measures designed to make it easier for banks to lend to corporate and private clients and that was supposed to ease the fear but it seems to have had the opposite effect.  All I can hear in my head is Harry Enfield's comedy scouse accent saying "Eh, calm down, calm down."
Sterling dropped a couple of cents and then rebounded half way back against the US Dollar. That did mean we hit the lowest level for 31 years but only briefly. However, the headline is that Sterling collapsed. It didn't. Sterling is at levels we last saw in 2013 against most other currencies but the USD strength is exacerbated by the US Dollar's attraction as a safe haven. Nonetheless, exporters and anyone invoicing in another currency should be rejoicing at the improved profit this delivers without any extra effort.
We do have some news that doesn't directly link to the UK's exit from the EU. Very little of it is market moving stuff but the minutes from the last federal Reserve Open Market Committee will be worth a read. Will they – won't they hike rates this year? That's the question everyone wants an answer to. They won't get it from the minutes but there may be hints and comments that affect the way the USD is perceived. Will it change the strength of the USD in these twitchy times? Nah.
Oh and there is a little matter of a football match tonight. Now listen Wales, I am English to the core and I can put behind us all the ribbing you give us whenever your rugby team is on form and I can cope with the cheers of your footballers when England's team was kicked out but can those of you who live on hills stop telling me you from a valley. I am sorry but I don't believe that one any more. However, as a man named David who was born on the 1st March, I will be cheering for Wales this evening. Come on Gareth.

Football news

Before he resigned, England manager Roy Hodgson set up a friendly match for the England team against Iceland to try and cheer fans up.
If they win that game, they'll play Lidl next Saturday and then Asda on Wednesday!

Today's Major Economic Releases 

Market BST Data/Event Previous Expected
EUR 09:00 EU: Retail PMI 50.6 50.6
CAD 13:30 Canada: Trade balance -2.6B -2.9B
USD 13:30 US: Trade balance -40.0B -37.4B
USD 15:00 US: ISM Non-manufacturing PMI 53.3 52.9
USD 19:00 FOMC meeting minutes     

FX Research by David Johnson

Daily Currency Analysis with Chris Verdet

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