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April 2016

Sterling recovers as Brexit fears subside

Published: Monday 25 April 2016

  • Sterling recovers as Brexit fears subside
  • Euro weaker ahead of forecast poor data
  • USD awaits Federal Reserve
     
It's Anzac Day in Australia and New Zealand, a commemoration of the lives lost during the dreadful Gallipoli campaign in 1915 where allied forces met fierce opposition from the caliphate known as the Ottoman Empire in what is now known as Turkey. It seems so sad that 101 years later, Turkey finds itself on the front line again as ISIL (a group claiming to be a caliphate) tries to fight its way to Europe.  As the French so subtly put it, plus ça change, plus c’est la même chose.
 
In financial markets, all the fighting has been done by the Pound which strengthened throughout last week. The data didn't support a Sterling rally but there appears to be a mood that suggests a vote to exit the EU is less likely today than it was a week ago. President Obama has courted a lot of criticism for his anti-Brexit comments which some saw as scripted by Downing Street. Whether you believe the President or not, the charges of hypocrisy of an American President telling Brits we should be relinquishing control to foreign powers must make you smile.  There is a chance his comments will backfire but, for now, the Remain camp appears to be on top.
 
Sterling strengthened across the board during last week, so we have to wait to see if that will continue with this week's data releases. We will get the latest economic growth data for the UK. The Quarter one data should show a slowdown from Q4. The 0.4% forecast would be a small drop in activity and Sterling ought to weaken if it is so.
 
The week ahead also brings a raft of data from the Eurozone including unemployment data, various confidence indices, trade balance figures and a slew of individual member state data releases. I suspect the Euro is in for a poor week but, as far as the GBPEUR rate is concerned, that will be a little offset by the pressure on the Pound that would come from a poor GDP release.
 
The diary is also full of US data and that includes the Federal Reserve's interest rate decision. No change is expected from the Fed but the tone and detail of their statement will be key to the direction of the USD in the days ahead. Everyone is keen to know when they will resume interest rate hikes. I suspect they may be disappointed in the dovishness of the Fed and that would weaken the USD. Be ready if you trade in Dollars.
 
Another central bank in the news will be the Reserve Bank of New Zealand. There is not likely to be any change to their 2.25% base rate but it is still a very attractive yield for investors who can borrow at virtually 0% elsewhere. Hence the NZ Dollar has strengthened whilst other commodity linked currencies have not.
 
Across the Tasman Sea, we will get a barrage of Aussie data. Inflation figures should reflect a slowdown, partly due to a stronger Aussie Dollar reducing import costs. We will also get import, export and producer price indices; all of which may explain the consumer inflation numbers. With the Reserve Bank of Australia on hold but on tenterhooks, the Australian Dollar is also likely to be twitchy. Opportunities to catch the highs and lows exist but overnight automated orders may be your best bet if you want to take advantage of that volatility.  Contact your Halo Financial Consultant for more information.
 
And finally well done to everyone who ran in the London Marathon, all 34,000 of you. Well done to the marshals and all the volunteers who made it another amazing event. 
 

CIA recruit

 
The CIA were in need of a female assassin. She needed to be middle aged and ordinary looking but able to work on her own and to kill without a thought. They selected a number of candidates and asked them to come in for a gruelling week of assessments but not to tell their partners of family what they were doing. Each of the women came up with a good cover story; a conference for work, a week away with the girls etc.
 
After four days of intense testing and assessment, each woman was led into a waiting room. They were called through to another room one by one. As each woman went through the door, the ones in the waiting room waited quietly.  Once in a while they would hear the sound of a gunshot and that made them increasingly nervous. 
 
Then it was the run of the last woman in the group. She was led through to another office, handed a loaded Glock Semi-automatic pistol. She checked it as per her training and found it was loaded with just one round. She was then told to head into the other room and shoot the person sitting in the chair in the centre of the room. What she didn't know was that the pistol was loaded with a blank round and the person in the chair was her husband. This was a test of her ability to follow any instruction, however painful.
 
She did as she was told, opened the door to the other room and saw her husband sitting in the only chair in the centre. The examiners waited patiently in the office and heard a loud bang from the pistol. They smiled at each other, knowing she had followed instructions.  Then they heard a huge commotion, crashing and banging continued for a few seconds and the then the sound stopped before they could react.
 
They stood to enter the room, but before they could do so, the door opened and the woman emerged. She wiped the sweat from her brow and composed herself, straightening her skirt and blouse before saying, "You guys need to check your ammunition supplier; the bullet was a dud so I had to beat him to death with the chair."
 
 

Today's Major Economic Releases

 
Market BST Data/Event Previous Expected
EUR 09:00 German IFO business climate 106.7 107.1
GBP 11:00 UK: CBI industrial orders expectations -14 -17
USD 15:00 US: New home sales 512 521

Daily Currency Insight and David Johnson

Daily Currency Analysis with Charlie Horsley


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