FX Market in Need of Conviction - Commerzbank
Obviously, the currency market is still not convinced of a Fed rate hike in summer, especially after today’s disappointing US nonfarm payrolls. While Janet Yellen will be able to do some more convincing next week, according to Esther Reichelt, analyst at Commerzbank, some more convincing is also required in the United Kingdom: Three weeks ahead of the vote, the Brexit camp is gaining traction, weighing on the pound.
“From next Tuesday, boredom may spread throughout the currency market as this will be the start of the blackout period ahead of the Fed meeting on 15 June, during which public statements from Fed members are no longer allowed.”
“However, after the labour market report and Janet Yellen’s speech on Monday night, all that is relevant with a view to the Fed meeting in June should have been said anyway.”
“Following last week’s assessment that a rate hike would probably be appropriate in coming months, Yellen is more likely to leave the door open for a near-term rate hike rather than make a U-turn. On Monday, however, it may well have some more convincing to do.”
“In addition to the Fed, the Brexit referendum on 23 June is one of the topics dominating the currency market. The pound came under pressure this week as the Brexit camp gained in several polls. Although the Remain camp is still in the lead, sentiment is at risk of turning.”
“Volatility in GBP exchange rates is likely to increase as a result. Numerous TV appearances from leading politicians next week could again heat up the debate and push surveys in a new direction. In principle, however, it will be a close call. We do not expect any clear direction in GBP exchange rates for now.”