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June 2016

Sterling dives as 'Leave' campaign gains ground

Published: Monday 06 June 2016

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  • Sterling dives as 'Leave' campaign gains ground
  • USD poised ahead of Fed Chair's speech
  • Rebound in Sterling expected by chartists 

Janet Yellen speaks to the World Affairs Council of Philadelphia today. Everyone is desperate to hear what she has to say about US interest rates in the wake of Friday's very poor US jobs data. The US added just 38,000 jobs in May; barely a quarter of most analysts’ forecasts and the US Dollar weakened on the news. It would be hard for the Fed to argue for an interest rate hike in that environment but a September hike is, many believe, still on the cards. Whether Mrs Yellen will pull the rug from under that argument is a moot point at this stage but all will be revealed very soon.
 
The GBPUSD rate is back to where it started before the US employment report but that is very clearly a Sterling issue. There is a growing feeling that the 'Leave' campaign is gaining momentum with regard to the EU referendum. That is weakening the Pound as uncertainty weakens everything in financial markets. Most Sterling related exchange rates have dived over the weekend and gaps between the closing price on Friday and the high on Monday have appeared. Traders will tend to follow the charts and a spike to €1.2760 is highly likely as well as spikes to AUD 1.9690 and CAD1.8750 are to be expected.
 
Other than Janet Yellen's speech, there are a couple of ECB speakers today but not much in the way of hard data. We will get an interest rate decision from the Reserve Bank of Australia overnight tonight. There isn't an obvious plan to cut the base rate after some more encouraging Australian Data. The Aussie Dollar is likely to be lively ahead of that announcement though, so that bounce in the GBPAUD rate mentioned above, is likely to happen today.
 
The Reserve Bank of New Zealand is expected to cut the NZ base rate on Wednesday evening (UK time). The current rate of 2.25% is expected to be cut by 25 basis points to 2.0% and the NZ Dollar, which has been remarkably strong of late, will give up some of its strength as we near that announcement and lose more if the cut goes ahead. NZD sellers may be in the midst of an opportunity right now.
 
Away from the markets, you have probably all heard of the Heimlich Manoeuvre, used by countless numbers of people to help choking diners. Well the man who created the technique, Dr Henry Heimlich finally got a chance to use the skill in real life when he saved a choking 87 year old woman who is a resident in his own retirement home. Dr Heimlich is himself 96 and, whilst he has demonstrated his life saving manoeuvre many times over the 42 years since he invented it, this is his first real life emergency deployment. Good on him. 
 

Hypothesis v reality

 
A 16 year old boy says to his dad, "I have to write something for school which explains the difference between hypothesis and reality. I'm stuck."
 
"Well let me explain," says the father. He turns to his wife and says, "Honey, would you sleep with Tom Cruise for a million quid?"
 
"Oh yes," says his wife, without a second's thought, before blushing and turning away.
 
He turns to his daughter and asks the same question.
 
"Daddy!" she says, shocked by the question. "I'm only 18 but yeah I probably would, "she says, "He's a bit old for me but he's still hot."
 
"So you see," says the father, turning back to his son. "Hypothetically we are in the company of two potential millionaires but in reality we are just living with a couple of tramps." 
 

Today's Major Economic Releases 

 
Market BST Data/Event Previous Expected
EUR 09:10 EU: Retail sales  47.9 50.6
EUR 09:30 EU: Sentix investor confidence 6.2 7.1
USD 15:00 US: Labor market conditions index -0.9 -0.9
USD 17:30 US: Fed chair Yellen speaks    

Daily Currency Insight by David Johnson

Daily Currency Analysis with Chris Verdet

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