Sterling Rebounds – 17th May 2016

Sterling Rebounds

I am sure many of us have blindly followed the instructions given by sat nav’s only to end up at the wrong destination, resulting over time in being less aware of our surroundings. We should therefore all have maps and know how to use them, just as investors revert to and follow charts to visualise price changes.

Currency graphs reveal not just where an exchange rate is right now, but also shows where it has been. Whilst history is no guarantee of future performance, the chart of Sterling against the Australian Dollar, for example, makes clear reading that Sterling has been enjoying a significant rebound from the GBP/ AUD 1.83 low on 21st April 2016. Since then, Sterling has recovered by more than 7% to it’s current level around GBP/ AUD 1.9750.

The Sterling rebound stuttered this morning though when the Reserve Bank of Australia published the minutes of its last policy meeting, the one at which it lowered its benchmark interest rate from 2% to 1.75%. Investors had half expected the minutes to warn of further rate cuts but when there was no hint whatsoever of such a move the Australian Dollar popped a cent higher.

Overall, Sterling took a fairly easy silver on Monday, strengthening by an average of 0.7% against the other dozen most actively-traded currencies. There were no stunning UK economic data to help it on its way: Sterling went higher simply because of an improvement in the opinion poll fortunes of the “Stay” campaign. Bookmakers’ are currently pricing the Remain vote at 3/10 on. Whatever the merits of staying or going, investors tend to be much more comfortable with the status quo than with uncertainty, hence Sterling’s upward move.

There is some more meaty data on today’s agenda, with CPI figures from Britain and the US as well as US industrial production. Japanese gross domestic product comes out tonight. The UK inflation data is something of a red herring: The referendum vote is far more relevant to interest rates than the minutiae of consumer prices. The US figures are more important with a rate hike next month remaining a possibility.