Sterling Surges – 19th May 2016
Sterling Surges
Wow! What a day for Sterling as aggressive buying saw the Pound strengthen by an average of 2% on the day, blowing every other currency out of the water. Among its gains were one and a half US cents, two Euro cents, three Yen and nearly five Aussie cents. The gain against the Aussie Dollar saw Sterling close above GBP/ AUD 2.02 for the first time in 3-months. Those gains would have been extraordinary had it depended on Wednesday’s rather ordinary UK employment data.
The magic ingredient came in the form of an opinion poll in the Evening Standard revealing that 55% of respondents want to Remain in the EU and 37% would prefer to Leave, giving the Remainers a much bigger lead. The only surprise about the reaction of investors was its magnitude on the back of just one opinion poll.
Taking second place for the day, the US Dollar mitigated its loss by half a cent when the Federal Open Market Committee published the minutes of April’s meeting. They gave further credence to the possibility of a rate increase next month. The word “June” cropped up no fewer than six times. Until the FOMC minutes came out at 19:00 yesterday evening the US Dollar had been steady against the Euro. It promptly strengthened by half a cent. The minutes were not unduly hawkish: the committee still expects “only gradual increases in the federal funds rate”. But their tone was direct enough to change investors’ outlook. At the beginning of this week they saw a 4% chance of a June rate increase; this morning they put it at 32%.
After Sterling’s stunning performance on Wednesday its challenge today will be to hold onto the gains with UK retail sales the potential stumbling block.
The Australian jobs data earlier this morning were vaguely disappointing, with employment rising by less than forecast. However, they did considerably less damage to the Aussie than the FOMC minutes, which cost it more than half a US cent. Beyond UK retail sales, today’s only other ecostats are for US jobless claims. Come on Sterling!