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June 2016

Sterling dices again as EU exit appears a possibility

Published: Monday 13 June 2016

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  • Sterling dices again as EU exit appears a possibility
  • Big data week ahead
  • US rate hike unlikely but hints on dates awaited
     

It was a great weekend to be British and English. Lewis Hamilton drove a tactically perfect race to narrow the F1 lead of his team mate, England beat Australia – IN AUSTRALIA – and that doesn't happen every day, England's under-20 team beat Scotland 44-0, we all celebrated the Queen's 90th Birthday and then there was the football....oh dear.
 
Never mind, the next couple of weeks will be all about Britain and for good and bad reasons. We are all tired of hearing about the EU referendum and the word Brexit has become as annoying as the over-used 'basically' or someone saying "I myself will call yourself" instead of the perfectly acceptable and time-efficient "I will call you". The 23rd of June cannot come soon enough unless you are a campaigner on either side, in which case no one seems to have made a totally compelling case just yet so every second counts.
 
The narrowness of the polls has started to consolidate the nervousness around the markets and the Pound is suffering. It has fallen to €1.26, US$1.41 and is down against most other currencies. This kind of selling is inevitable ahead of the vote and we ought are likely to see more weakness and more volatility in the next 10 days.
 
It isn't the only story though. UK inflation data is expected to show a small uptick on Tuesday and we are expecting a very minor change in unemployment claimants on Wednesday. Thursday brings an announcement of no change from the Bank of England but the statement/minutes that accompany the announcement may give hints as to the BOE's pre-Brexit planning and that would be interesting.
 
 
Eurozone industrial production is forecast to have risen and that data is due tomorrow.  That's a couple of days ahead of the ECB's monthly bulletin and it would be interesting to see what they have to say about the potential for a UK exit from Europe. Even though the UK is outside the Eurozone itself, its importance as an export market for Europe is crucial.  
 
Tuesday should also bring poor US retail sales adding weight to the Fed's reticence over interest rate hikes and we will have that interest rate decision on Wednesday when I believe they will postpone the hike once more. A month ago, everyone who could get a column inch or a 20 second TV slot was telling us with absolute authority that US interest rates would rise in June and now; to use the football parlance, 'It's all gone quiet over there'. Friday brings the week to an end with the whimper of US housing data and Canadian inflation data, none of which is expected to cause major disruption.
 
A naked restaurant has opened in London where the lighting is low and booths hide diners from each other. That kind of defeats the reason for being daring and nekkid in the first place but, as I will never visit, no one needs to know my opinion. There is a naked restaurant in Japan though where the rules are even more pointless. You won't be naked if you visit. You will be issued with paper underwear and if you are overweight or have tattoos, you will not be admitted. I assume you will have to strip off before they realise you are either overweight or tattooed. That'll be an interesting conversation. 

Quote

 
Before I got married I had six theories about bringing up children; now I have six children and no theories.
 
John Wilmot (Earl of Rochester)
 

Today's Major Economic Releases 

 
Market BST Data/Event Previous Expected
EU 13:00 ECB Chair Nouy speaks    
GBP 14:30 UK: CB leading index m/m 0.0% 0.0%
NZD 23:45 New Zealand: FPI m/m 0.3% 0.3%

FX Research by David Johnson
Daily Currency Analysis with Richard Smith

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