Sterling sell-off continues

GBP

Sterling sell-off continues

Yesterday’s poor GBP PMI Construction data and the sell-off across property funds and equities was the latest catalyst for sterling weakness yesterday. UK asset managers led by Standard Life announced they were halting retail investors from pulling money out of the property funds. M&G and Aviva quickly followed as well, freezing trading. The pound just touched through the 1.3 level against the dollar falling 1.8% by the London close.

Bank of England Governor Mark Carney yesterday announced a cut to major UK banks’ capital requirements which will reduce the capital they have to hold by £5.7bn, which will immediately free up £150bn for additional loans. He announced he would prevent the extra cash being used to finance shareholder or dividend payouts. Carney announced he “expects” lenders to use a decent chunk of the cash to keep credit flowing.

Eight banks have now agreed to do just that following a meeting with the chancellor yesterday. In a joint statement made with Osborne, key figures from the banks stated: “While we are realistic about the economic challenge facing the country after the referendum result, we are reassured that collectively we can rise to it. The last time Britain faced an economic shock the banks were at the heart of the problem.”

In reference to the new cash made available to them, the lenders also “agreed to make the extra capital available to support lending to UK businesses and households in this challenging time”.

Will this be the only stimulus required?

Today no fundamental data is being released for the UK so sterling is likely to be driven by any news that emerges and data released by its peers. However, unexpected news items like yesterday’s events can always play a part.

EUR

Euro run continues

The euro once again took advantage of the pound’s demise seeing it appreciate over 1.35%. However, it was unable to do this against the dollar which continues to act as a safe haven seeing it lose over 0.6%.

Yesterday morning released European Services PMI, which saw Spain, Italy and Germany all significantly beat expectation and post expansionary figures. This run of positive results was halted this morning as German factory orders released 1% worse than expected at 0%. Later this morning ECB President, Mario Draghi, speak in Frankfurt, regarding the financial situation we are currently seeing in the eurozone.

Despite the enormous pressure currently on the UK, the ECB will know that they are far from being out of the woods, with many of their nation countries potentially facing serious problems in the near future.

USD

US Data Train Full Steam Ahead

US data releases this week were kicked off with month-on-month factory orders in the afternoon of the London session showing a relatively close figure of -1.0% compared to the forecasted -0.8%.

Although being a good leading indicator of production, it had a negligible effect on the dollar’s movements. FOMC Member Dudley started his speech in the evening, generally talking about the US growth in H1 being just below 2% and that the consequences of the Brexit vote are yet to be fully understood.

We saw GBP/USD drop nearly 2% down to the 1.30 levels by the end of the London session mainly due to continued pound weakness since Brexit. In the very early hours of today we saw the pair drop even further to the 1.28 region while the yen had massive gains on all of its major counterparts including a 0.6% rise against the dollar.

The Federal Open Market Committee continues to steal the show with trade balance figures and Member Tarullo speaking in the afternoon, while meeting minutes released in the evening. We also have the Non-Manufacturing PMI release in the afternoon adding on to what could be a very interesting week for the dollar.

Elsewhere

Australia slows

Yesterday morning saw the release of Australian retail sales and trade balance figures, which both reported worse than expected at 0.2% and -2.2bn respectively. This may begin to halt the rapid appreciation the Australian dollar has experienced against some of its peers, in particular against the pound, where like many others it has strengthened over 11%.

On what is a quiet day in terms of data releases, the only release of note comes this afternoon in the form of Canadian trade balance. Following last month’s reading of -2.9bn, Canadian experts are anticipating a reading of -2.6bn.

Data Releases

09:£0 ECB President Draghi Speaks
13:30 CAD Trade Balance
15:£0 ISM Non-Manufacturing PMI
19:£0 FOMC Meeting Minutes

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