Pound Lower on Fears of UK Leaving the EU
The UK Prime Minister announced that a referendum on Britain’s membership of the European Union (EU) will be held on 23 June 2016. The historic announcement came after the European Leaders agreed to a deal on the UK’s relationship with Europe late on Friday after intense wrangling at a two-day summit in Brussels. Meanwhile, the Prime Minister now faces a daunting challenge of persuading UK to stay in the EU amidst growing conflict in the Cabinet as some have come out openly in favour of leaving the bloc.
Investors will look forward to the release of the CBI industrial orders expectations print as the UK docket remains almost data empty today. In Europe, flash data showed that the Euro zone’s private sector growth slowed in February. Across the Atlantic, manufacturing PMI and Chicago Fed activity data will be out later today.
Pound Sterling – UK Markets
The Pound edged higher against the US Dollar into the close on Friday as markets reacted positively to news that the UK Prime Minister, David Cameron, reached an agreement in the EU summit to keep the UK in the bloc. Sterling rallied above the 1.43 mark against the greenback following the announcement. A date of 23 June was finally set for the momentous in or out UK vote to decide whether to remain in the EU. Meanwhile, the Pound - US Dollar currency pair has started the new week on a downbeat note as few of the British Cabinet ministers during the weekend expressed their intention to campaign for a so-called Brexit or Britain’s exit from the EU. Sterling could remain under pressure from here on due to the uncertainties that lie within such a proposal to leave the EU and the subsequent volatility in the greenback.
On the macroeconomic front, investors will eye the CBI survey results for February after the gauge of industrial orders in the UK had continued its nine month long negative streak last month, amid a slowing global economy that has had an impact on the nation’s exports.
US Dollar – US Markets
The US Dollar traded slightly higher against the Euro on Friday after US inflation data came out better than expected. The inflation figures drew particular attention as the core CPI, a key gauge of underlying US inflation, rose in January by the most since August 2011. Upbeat CPI print signalled a pick-up in price pressures and suggests a meaningful shift in inflationary expectations for this year. Going forward, the strength in the greenback will be dependent on macroeconomic data, scheduled in the coming weeks, that has the potential to force investors to reassess their interest rate expectations.
The US Dollar is trading on a stronger footing against the majors this morning. Recent economic data including inflation numbers, a stronger jobs market and consumer spending bolsters the case for the Fed to consider raising rates in the near term. Among today’s updates, the preliminary manufacturing PMI data and the Chicago Fed National Activity index will attract some market attention as investors look for data that could add to evidence of an improving US economy in the first quarter.
Euro – European Markets
The Euro – Sterling currency pair has rallied above the 0.78 mark this morning due to broad based weakness in the Pound, while the shared currency is trading lower against the US Dollar.
In economic news, data published earlier today, showed that growth in the Euro zone’s private sector slowed more than expected in February. The flash composite index marked a 13-month low in February as the Euro area showed signs of a sharp strain from slower global economic growth. In Germany, the private sector slowed for the second straight month in February, as a surge in the nation’s services activity was offset by a slower than anticipated increase in activity in the manufacturing sector. Data attributed the slowdown in Germany’s manufacturing sector to weaker overseas demand for its export orders. Additionally, the French private sector contracted for the first time in more than a year in February, as weakness in the services sector weighed on strong manufacturing activity in the nation. The disappointing PMI readings from the Euro zone and its two major economies are likely to have intensified fears of more stimulus measures by the ECB.
Other Currencies – Highlights
The Japanese Yen gave up gains and fell against the US Dollar today after data released earlier showed that Japan’s flash manufacturing PMI fell more than expected in February, as new export orders contracted at the fastest pace in three years. Data showed that a combination of the appreciation of the Japanese Yen and waning global demand due to slowing economic growth weighed on the nation’s exports. Although the PMI reading showed that manufacturing stayed in expansionary territory this month, the figures signal that the Japanese economy is not in a recovery mode. However, investors will await the final figures to get a better idea about the health of the Japan’s manufacturing sector and to predict the Bank of Japan’s further actions in its next policy meeting in March. In separate data, supermarket sales in Japan rose in January, after remaining flat in the previous month.
Going forward, investors will eye US preliminary manufacturing PMI and Chicago Fed National Activity Index, due later in the day, for further direction in trading for the currency pair.