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May 2016

Pound strengthens after poll

Published: Thursday 19 May 2016

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  • Pound strengthens after poll
  • FOMC Hawkish
  • UK retail sales bounces back in April 
It was a very strong day for the Pound yesterday, gaining against all its major counterparts. The latest IPSOS Mori poll of 22,000 voters revealed the stay camp was significantly ahead with 55% of those polled in favour of remaining in the EU versus 37% in favour of leaving. Whilst this poll is only one of several and on previous occasions it consistently had the remain camp about 8-9 point ahead of the leave camp, this increase in the stay votes buoyed the Pound trading up over 1% against its’ peers. William Hill have changed their odds to 3/1 from less than 2/1 that the UK will leave the EU and the Pounds’ strength continues into today’s trading session.

Retail sale jumped 1.3% comfortably above the 0.7% expectation. The prior month was also revised up to -0.5% from -1.3% previously reported. Despite the UK inflation remaining significantly subdued, consumers continue to be very cautious about spending.

The Dollar jumped broadly overnight as the modestly hawkish FOMC minutes spurred hope of interest rate increase next month.  Most Fed officials were in favour of a June rate hike if the economic data supported such a move. Within the minutes were the usual caveats but if economic data suggest growth were picking up in 2Q16, job market continued to improve and inflation were making progress to reach the +2% target, then a rate hike would be justified.  Fed fund futures are now pricing in 34% chance of a June hike which is sharply higher than 4% chance at the beginning of the week.

The Euro had a poor session yesterday, weakening against both the Pound and the Dollar. Inflation was also flat in pail and contracted -0.2% year on year. We await the minutes of the ECB’s last interest rate meeting where they elected to leave rates on hold. Any suggestion in the minutes of further need to loosen monetary policy further will see the Euro weaken further.

Commodity currencies were weaker overnight, losing ground to the Pound and the Dollar spurred on by the hawkish FOMC minutes – in particular the Australian dollar came under selling pressure on the back of weaker jobs data.

Main data releases of note tomorrow will be German producer price data and Canadian inflation numbers.
 

Today's Major Economic Releases 

 
Market BST Data/Event Previous Expected
GBP 09:30 UK: Retail sales m/m -1.3 1.3 
EUR 12:30 EU: ECB Monetary policy meeting accounts    
CAD 13:30 Canada: Wholesales sales m/m -2.2 0.5
USD 13:30 US: Philly Fed manufacturing index -1.6 3.2
USD 13:30 US: Unemployment claims 294 276

Daily Currency Insight by Alastair Sweetman

Daily Currency Analysis with Michael Hart

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