Currency Note

Brexit fears undermining sterling against the euro and US dollar

By Smart Currency June 17th, 2016

Brexit fears undermining sterling against the euro and US dollar

The uncertainty accompanying the results of the vote has heightened sterling volatility in the currency markets, with sterling this week weakening to three-month lows against the euro and US dollar.

Should the UK choose to remain in the EU, we could see sterling stabilise and potentially strengthen – this would make sterling more expensive to buy and other currencies cheaper. Should the UK choose to leave the UK, we could see increased sterling volatility as the UK negotiates its new status outside of the EU. This would have a direct impact on UK businesses with international payments.

To find out how this could affect your business, contact your Smart Currency Business trader today.

Sterling unsure which way to head!

A difficult week for sterling saw it lose and then regain ground across the board ahead of next week’s referendum on EU membership. With the campaign to leave the EU edging ahead in the latest opinion polls, sterling struggled at the start of the week, falling to the lowest level in three months against the euro on Tuesday. A better-than-expected jobs report did provide a boost for sterling on Wednesday, with unemployment falling to the lowest level in 10 years as opinion polls showed a tightening in public sentiment.

Despite retail sales once again beating the forecast level to show 0.9% growth compared to the previous month, sterling found itself under further pressure on Thursday as it fell to fresh three-month lows against both the euro and US dollar before staging a mini recovery later in the day.

No significant data is expected from the UK today, with investor focus likely to be taken by further news surrounding the EU referendum.

Euro data seems more positive

It was a busier day for the euro yesterday with large focus on positive final inflation figures which were released 0.4% better than previously month-on-month, and remaining unchanged from last year’s figure. This suggests a small sign of support for the euro despite the focus on the EU referendum and a potential ‘Brexit’. At one stage yesterday the euro reached a three-month high against the pound and we expect to see further movement towards the build-up on the EU referendum as the polls suggest a close result.

Today we expect much of the focus on European Central Bank (ECB) President Mario Draghi, who is speaking in the afternoon. Investors will be tuning in to see if he gives an indication of the health of the Eurozone.

US dollar initially benefits from Brexit fears

It was initially a positive day for the US dollar, as it strengthened against both sterling and the euro. The movement related to the UK’s EU Referendum as investors moved away from sterling to the safe haven US dollar.

US economic data then failed to add to this strength, with consumer inflation figures showing slower growth than expected. Weekly unemployment claims data did little to offset this, only showing a slight increase.

Today we have Building Permits due out which is expecting a slight increase on the previous figure.

Australian dollar hit one-month high against sterling

The Australian dollar saw a one- month high against sterling, influenced by positive data in terms of employment change figures released this morning. Obviously increasing sterling weakness has contributed to this movement as well. This movement was fortuitous for sellers of the Australian dollar currency, but may not last, given market volatility.