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June 2016

Sterling twitchy as Brexit fears take hold

Published: Wednesday 15 June 2016

  • Sterling twitchy as Brexit fears take hold
  • UK employment – minor gains expected
  • Federal Reserve is the days highlight

The only things we haven't been promised in the event of Britain voting to exit the EU is a plague of frogs and the striking down of our firstborn children. The litany of fear is unrelenting but in spite of that (or maybe because of it) according to the polls and the bookies, the 'Leave' campaign is gathering pace. Sterling is at a low ebb but has found support in the USD 1.41 area and in the EUR1.25 area. It was put rather neatly this morning by James Mackintosh of the Wall Street Journal who said, as far as Brexit goes, investors have gone from 'denial to fear' and that does appear to be the case. The Pound faces UK unemployment data today which is expected to be marginally positive but traders will be braced for this evening's US interest rate announcement.
A few months ago, every commentator seemed to be convinced the US base rate would rise by 25 basis points in this June meeting of the Federal Reserve's open market committee but that has changed.  US data really doesn't support a rise at this stage and all the scaremongering about a global recession caused by little old Britain is creating nervousness across the investor ranks and within central banks. Before the Fed gets to make its announcement, they will get US manufacturing and industrial production as well as one of the favourites, capacity utilisation.  The inward flow of funds into US treasuries is a decent measure of investors’ sentiment and that has been steadily increasing of late. That data is also out today. The USD may weaken after the Fed says no to a rate hike but, if they surprise the living bejeezers out of us and sneak in a 25 basis point hike, then USD strength is inevitable.
Overnight tonight we will get New Zealand economic growth data. A rise in the annual rate to 2.6% is the forecast. This level or anything better that this will strengthen the already robust NZ Dollar. If you are a Kiwi Dollar buyer, be careful of that.
And assuming we aren't all washed away by the rain, let's review the Fed decision and have another look at the markets tomorrow.


A guy turns up at the police station and asks to speak with the man who burgled his house the night before.
"I can't let you do that," says the Desk Sargent. "He gets access to a lawyer and then will be taken to court. You might be able to ask him questions there but it depends on the judge."
"But there is something I need to know," says the guy.
"Well you seem pretty distressed," says the Sargent. "Ask me your question and I will ask the prisoner whether he is happy to answer it."
"Ok, thank you," says the man. "You see, the thing is that he got into our house, up the stairs and into our bedroom at 2.30 in the morning without waking my wife and in 20 years of marriage I have never managed that, so what's his secret?" 

Today's Major Economic Releases 

Market BST Data/Event Previous Expected
GBP 09:30 UK: Average earnings index 3m/y 2.0% 1.7%
GBP 09:30 UK: Unemployment rate 5.1% 5.1%
EUR 10:00 EU: Trade balance 22.3B 21.6B
CAD 13:30 Canada: Manufacturing sales m/m -0.9% 0.7%
USD 13:30 US: PPI m/m 0.2% 0.3%
USD 13:30 US: Core PPI m/m 0.1% 0.1%
USD 13:30 US: Empire state manufacturing index -9.0 -3.4
USD 19:00 US: FOMC statement    
USD 19:00 US: Federal funds rate 0.50% 0.50%
NZD 23:45 New Zealand: GDP q/q 0.9% 0.6%

FX Research by David Johnson
Daily Currency Analysis with Alastair Sweetman

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