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GBP/USD: Sterling Dips Again on New Leave-Favoring Brexit Poll
The latest Brexit poll by YouGov helped drag the Sterling lower late on Monday local time, showing another convincing majority in favor of leaving the European Union (EU).
Some 46% of those surveyed said they wanted to leave the union, according to YouGov, while only 39% said they would vote to remain.
The GBP/USD dropped to 1.4220 on Monday evening in London from 1.4254 at the close of trade on Friday, moving off an intraday low of 1.4123, the weakest the pair has traded in 10 weeks.
YouGov's poll comes on the heels of an ORB poll on Friday which indicated a 55/45 split in favor of the 'Leave' campaign. The ORB poll does not include undecided voters.
On Monday an ICM Brexit poll put the 'Leave' campaign ahead by five percentage points.
"It seems fairly certain the GBP has plenty further capacity to fall if a ‘Brexit’ vote prevails next week. Equally, a knee-jerk relief jump will occur on a ‘Bremain’ result," BNZ currency strategist Kimberly Martin said in a note.
UK Inflation Unexpectedly Steady in May
The annual rate of the CPI measuring inflation in the UK remained unchanged at 0.3% in May, with the core inflation also staying steady at 1.2%, figures from the Office for National Statistics (ONS) showed on Tuesday.
With the exception of March, when the CPI spiked to 0.5% on the back of an earlier Easter this year, inflation has been stuck at the same level since the start of this year, the ONS figures showed.
Significantly low inflation suggests the Bank of England (BoE) will not be in a rush to raise interest rates, which it has held at a record low level since March 2009.
"The Bank of England will be less pleased with only stable inflation down at 0.3%, but its mind will likely be very much on next Thursday’s EU membership referendum," Howard Archer from IHS Economics noted after the data were made public on Tuesday.
The CPI data today showed inflation remained subdued and unchanged in May, as the prices of both petrol and diesel rose only very slightly higher this year compared to the same month a year ago.
The largest downward drivers were lower prices of clothing, footwear and food. Prices of those products on the UK high streets remain in deflationary territory as fierce price competition among the major retailers continue to weigh down on margins.
The British Retail Consortium (BRC) said in its most recent survey that there was no sign of an end to shop price deflation, as the headline index fell deeper below zero to 1.8% in May, with prices of food moving back into deflationary territory.
Still, BRC chief executive Helen Dickinson said regarding the outlook: "The recent commodity price increases will start to put pressure on retailers to raise their own prices."
"We would normally expect these input costs to filter through to prices eventually, but the big question is how far fierce competition in the industry will insulate consumers from price increases. If retailers do continue to absorb these costs it'll be more important than ever that other external costs, business rates chief among them, are brought under control," Dickinson added.
A separate ONS release showed today UK house prices increased 8.2% in the year to April, down from a rise of 8.5% a month before.
The inflation data comes at a time of increased volatility ahead of the European Union (EU) referendum, which many analysts consider one of the year's biggest risks.
The BoE warned in its latest forecast that an EU referendum outcome in favor of Brexit could "materially alter" the growth and inflation outlook and the framework for monetary policy.
If a Brexit happens, inflation is seen rising at a notably faster rate, driven primarily by the significant pass-through effect from a sharp depreciation of sterling. Brexit could lead to higher inflation, but also to lower growth, and higher unemployment – an asymmetric situation that would require the BoE to maneuver very cautiously between the two tides.
Even when stripped of the increased level of uncertainty, the BoE sees short-term inflation rising slightly faster when compared with its previous forecast, reaching 1.3% in the first quarter of next year, before overshooting the 2% target in the second quarter of 2018.
The UK's National Institute of Economic and Social Research (NIESR) expects consumer price inflation to remain below the target of 2% until the end of 2017, before rising to the target in 2018.
In its most recent forecast, NIESR reiterated that sterling's recent depreciation has been primarily driven by Brexit risks. The institute added that the currency could plunge as much as 20% if the UK votes to leave, and continue to decline and hit parity against the euro by 2030.
This scenario would generate significant upward pressure on inflation. NIESR analysts assume that despite this price pressure surge, the BoE would "look through" this temporary effect - just as it did in late 2011 when a VAT hike pushed up consumer prices sharply - and sit tight on rates until 2018.
source
Sterling Drifts Higher Ahead of Labor Market Update
The pound was slowly erasing this week's losses and was pushing higher on Wednesday as sentiment improved slightly. The GBP/USD pair was trading 0.40% higher around $1.4160.
Sterling traders will focus on today's labor market data from the United Kingdom. The jobless rate is expected to stay at 5.1% in April, while the jobless claims change should tick higher to 0 from -2,400 previously.
However, a slow down is projected for average weekly earnings, which might undermine the pound further.
The correction of sterling higher is also partly result of the relief from the Brexit worries as the ComRes polls showed 'Remain' camp taking the lead back over.
Later today, "Chancellor George Osborne will look to warn of the risks of large scale tax rises and an emergency budget in the event of a 'Leave' vote along with previous Labour Chancellor Alistair Darling as the 'Remain' camp resorts to further somewhat desperate tactics to try and arrest the slide in the opinion polls towards the 'Leave' camp," Michael Hewson, chief market analyst at CMC Markets UK, wrote on Wednesday.
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UK Retail Sales Preview: Crunch Time for High Street as Brexit Hits Confidence
The latest figures from the Office for National Statistics (ONS) due out on Thursday will probably show subdued growth at the nation's stores after the earlier timing of Easter this year and a weather impact caused a jump in sales in April.
Sales volumes excluding fuel rose 0.3% from April, when they had soared 1.5%, the ONS will say, according to a survey of economists.
Total retail sales increased 0.2%, according to the estimates, following a 1.3% jump in April.
From a year earlier, sales excluding fuel rose 3.8%, compared with the 4.2% increase in April, economists predict. Total sales were up by 3.9%, rising less than the 4.3% increase in April, the survey showed.
Bank of England MPC votes 9-0 to leaves interest rate unchanged at 0.50%
Details of the Bank of England's MPC monetary policy announcement June 2016
Full statement;
Bank of England maintains Bank Rate at 0.5% and the size of the Asset Purchase Programme at £375 billion
16 June 2016Monetary policy summary
The Bank of England's Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target and in a way that helps to sustain growth and employment. At its meeting ending on 15 June 2016 the MPC voted unanimously to maintain Bank Rate at 0.5%. The Committee also voted unanimously to maintain the stock of purchased assets financed by the issuance of central bank reserves at £375 billion.
Twelve-month CPI inflation was 0.3% in May and remains well below the 2% inflation target. This shortfall is due predominantly to unusually large drags from energy and food prices, which are expected to attenuate over the next year. Core inflation also remains subdued.
The MPC set out its most recent detailed assessment of the economic outlook in the MayInflation Report. Relative to those projections, there has been limited news on the outlook for the global economy. Growth in the United Kingdom's major trading partners is expected to continue at a modest pace over the next three years. In China and other emerging markets, the prospects for activity are little changed and medium-term risks remain to the downside. Commodity prices have risen since the Committee's MayReport, however, with sterling oil prices in particular having increased by around 10%.
In the weeks since the MayReport, an increasing range of financial asset prices has become more sensitive to market perceptions of the likely outcome of the forthcoming EU referendum. On the evidence of the recent behaviour of the foreign exchange market, it appears increasingly likely that, were the UK to vote to leave the EU, sterling's exchange rate would fall further, perhaps sharply. This would be consistent with changes to the fundamentals underpinning the exchange rate, including worsening terms of trade, lower productivity, and higher risk premia. In addition, UK short-term interest rates and measures of UK bank funding costs appear to have been materially influenced by opinion polls about the referendum. These effects have also become evident in non-sterling assets: market contacts attribute much of the deterioration in global risk sentiment to increasing uncertainty ahead of the referendum. The outcome of the referendum continues to be the largest immediate risk facing UK financial markets, and possibly also global financial markets.
While consumer spending has been solid, there is growing evidence that uncertainty about the referendum is leading to delays to major economic decisions that are costly to reverse, including commercial and residential real estate transactions, car purchases, and business investment. As the Committee has previously noted, potential referendum effects are making economic data releases more difficult to interpret, and the Committee is being more cautious in drawing inferences from them than would normally be the case.
The MPC's projections in the MayInflation Reportwere conditioned on continued UK membership of the EU. On that assumption, returning inflation to the 2% target requires balancing the drag on inflation from external factors and the support from gradual increases in domestic cost growth. Fully offsetting that drag over the short run would, in the MPC's judgement, involve too rapid an acceleration in domestic costs which would risk being excessive and lead to undesirable volatility in output and employment. Given these considerations, the MPC intends to set monetary policy to ensure that growth is sufficient to return inflation to the target in around two years and keep it there in the absence of further shocks.
Consistent with the projections and conditioning assumptions set out in the MayReport, including a gentle rise in interest rates over the forecast period, the MPC judges that it is more likely than not that Bank Rate will need to be higher by the end of the forecast period than at present to ensure inflation returns to the target in a sustainable manner. All members agree that, given the likely persistence of the headwinds weighing on the economy, when Bank Rate does begin to rise, it is expected to do so more gradually and to a lower level than in recent cycles. This guidance is an expectation, not a promise. The actual path Bank Rate will follow over the next few years will depend on economic circumstances.
As the Committee set out last month, the most significant risks to the MPC's forecast concern the referendum. A vote to leave the EU could materially alter the outlook for output and inflation, and therefore the appropriate setting of monetary policy. Households could defer consumption and firms delay investment, lowering labour demand and causing unemployment to rise. Through financial market and confidence channels, there are also risks of adverse spill-overs to the global economy. At the same time, supply growth is likely to be lower over the forecast period, reflecting slower capital accumulation and the need to reallocate resources. Sterling is also likely to depreciate further, perhaps sharply. This combination of influences on demand, supply and the exchange rate could lead to a materially lower path for growth and a notably higher path for inflation than in the central projections set out in the MayInflation Report. In such circumstances, the MPC would face a trade-off between stabilising inflation on the one hand and output and employment on the other. The implications for the direction of monetary policy will depend on the relative magnitudes of the demand, supply and exchange rate effects. The MPC will take whatever action is needed, following the outcome of the referendum, to ensure that inflation expectations remain well anchored and inflation returns to the target over the appropriate horizon.
Against that backdrop, at its meeting on 15 June, the MPC voted unanimously to maintain Bank Rate at 0.5% and to maintain the stock of purchased assets, financed by the issuance of central bank reserves, at £375 billion.
GBP/USD: Sterling Jumps as Sentiment Mildly Improves
The pound was rising on Friday as bears took a pause after Thursday's tragic events and the GBP/USD pair was 0.6% stronger on the day, trading around $1.4290 during the London session.
The previous session brought surprisingly positive UK data, when domestic retail sales rose 6.0% year-on-year in May, up from 5.2% scored in April, with the monthly change slowing notably to 0.9% from 1.9% previously.
Later on, the Bank of England (BoE) joined ranks with other central banks and decided to make no changes to its policy settings. The meeting minutes showed that all nine members of the BoE's Monetary Policy Committee voted to keep both interest rates and asset purchases unchanged.
More importantly, UK Labor Party MP and EU-supporter Jo Cox died after being attacked while meeting her electoral constituents in the town of Birstall. Therefore, all campaign events planned for today have been suspended.
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GBP/USD Weekly Outlook: 'Remain' or 'Leave' Will Set Sterling's Fate
Thursday will be a very important day for the UK and Europe, with most of the volatility likely to be on the GBP pairs and English stocks (the FTSE index), as Britons go to vote.
"Since the end of May, the polls have shown a shift in favor of leaving the EU, which has reduced investors' appetite for risk. In the currency markets, sterling has weakened quite significantly, whereas traditional "safe havens", such as the Japanese yen, have strengthened. The stock market in the UK has also performed poorly," analysts at Capital Economics wrote on Friday.
As many as four out of five public opinion polls published in the last five days have shown stronger support for the 'Leave' camp. Only three out of 12 polls published so far in June have shown the 'Remain' camp in the lead. Even though the polls have been showing rising support for Brexit, the betting odds continue to show support for EU membership steady around 66%, with 36% against membership.Should Britain leave the European Union, sterling will most likely suffer a big hit. The GBP/USD pair might drop toward $1.35 or further lower. On the other hand, a surprising win for the 'Remain' camp might push the pound back towards $1.50.
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UK Market Insight: Forex Traders Brace for Long Night on June 23
The horrific, politically-motivated murder of Labour party MP Jo Cox, a supporter of the 'Remain' camp, could be seen as a significant unifying factor within a strongly divided British society, given the latest calls for solidarity across the UK's political spectrum.
The tragedy comes just a few days ahead of the June 23 EU referendum. The campaigns have been temporarily suspended in the aftermath of the attack, and the markets have paused for a breather before next week's storm. The UK parliament has been recalled for next Monday to pay tribute to the Labour MP.
What forex analysts say
Some forex analysts view the tragedy as a boost to the 'Remain' camp, given the political, hate-driven motivation behind the murder. The North England local police authorities suspect a 52-year old man to be a murderer, who before attacking Cox was heard shouting the neo-nazi slogan 'Put Britain First.'
Even though some analysts postponed their comments for early next week as a show of solidarity, some expressed their tentative views on possible developments in the days to come ahead of the June 23 vote.
"Sterling is back in favor today [Friday] as markets seem to be dialing down their expectations that the UK is heading for the EU exit," Joe Rundle, a head of trading at London-based ETX Capital, wrote in a note to clients on Friday.
"We've seen more buying as investors take up long positions in the hope that the recent batch of polling data has misjudged the mood and the bout of pound selling is overdone. Over the next few days polling data will be key for sterling pairs, particularly cable."
"Lloyds, Standard Chartered and Barclays are all flying high today. Banks share prices are predicted to drop sharply in the event of a Brexit and these stocks have been pressured lower over the last fortnight as the polls showed increasing support to leave the EU . . . Whatever the result, there is likely to be a lot more volatility over the coming days," Rundle wrote.
Mike van Dulken, head of research at Accendo Markets, wrote to clients on Friday morning: "A positive European open follows gains in both the US and Asia that can be attributed to diminished fears of a UK exit from the European Union (Brexit). This after referendum campaigning was suspended by both sides following the callous murder of mother, humanitarian, MP and 'Stronger in Europe' campaigner Jo Cox. The assumption is that the tragic event will sway the undecided to vote Remain and possibly even reverse some of the Leave momentum seen in recent polls."
Analysts from Market Securities began to speculate on a loose chatter suggesting the EU referendum might be postponed due to the tragedy.
"The rebound in sterling [on Friday] coincided with a tweet from UK Prime Minister David Cameron stating that all campaigning around the EU referendum has been suspended giving rise to very loose chatter that the vote itself could be delayed or that act could encourage more voters to choose to remain in the EU."
"While these rumors seemed to lift markets, analysts suggested such a delay would be nearly impossible to implement a mere week before the 23-June vote. In betting markets, the odds of a remain vote climbed," Market Securities chief economist Christophe Barraud wrote on Friday.
Economists at Berenberg bank's London branch argued in their most recent market analysis that even if a Brexit comes true, it "would not be a black swan."
"Markets have discussed the threat for the last six months; we identified it as the key risk to our modestly positive outlook for European economies long ago. The world as we know it would not end with a Brexit. It would just be a more risky place for a while," Berenberg's economics team wrote in a note late Thursday this week.
GBP/USD Weekly Outlook: 'Remain' or 'Leave' Will Set Sterling's Fate
Thursday will be a very important day for the UK and Europe, with most of the volatility likely to be on the GBP pairs and English stocks (the FTSE index), as Britons go to vote.
"Since the end of May, the polls have shown a shift in favor of leaving the EU, which has reduced investors' appetite for risk. In the currency markets, sterling has weakened quite significantly, whereas traditional "safe havens", such as the Japanese yen, have strengthened. The stock market in the UK has also performed poorly," analysts at Capital Economics wrote on Friday.
As many as four out of five public opinion polls published in the last five days have shown stronger support for the 'Leave' camp. Only three out of 12 polls published so far in June have shown the 'Remain' camp in the lead. Even though the polls have been showing rising support for Brexit, the betting odds continue to show support for EU membership steady around 66%, with 36% against membership.Should Britain leave the European Union, sterling will most likely suffer a big hit. The GBP/USD pair might drop toward $1.35 or further lower. On the other hand, a surprising win for the 'Remain' camp might push the pound back towards $1.50.
GBP/USD: Sterling Surges as Poll Puts 'Remain' Vote Back in Front
BMG Research's final Brexit poll before official voting starts later this week helped drive the sterling higher on Monday, with voters apparently now swinging in favor of remaining part of the European Union (EU).
The EU referendum phone poll conducted by BMG Research/Herald Scotland found that some 46% of voters would opt to remain in the trading bloc, while 43% wanted to leave, and the remaining 11% were still undecided.
The GBP/USD traded 1.48% higher at 1.4558 as markets opened on Monday morning, off Friday's close in New York of 1.4362, and the strongest in 12 days.
"Sterling is back in favor today as markets seem to be dialing down their expectations that the UK is heading for the EU exit," Joe Rundle, a head of trading at London-based ETX Capital, wrote in a note to clients on Friday.