Pound still on the ropes
GBP has fallen below the 1.40 level versus the USD for the first time in 7 years overnight as traders and investors continue to express their unhappiness with EU referendum uncertainty. Sterling has also broken below some other important levels in the past 24hrs – sub-1.27 in GBP/EUR and below 1.95 in GBP/AUD – but it is GBP/USD that most are focused on.
Indeed that is where the majority of the scarier calls for how sterling would perform post a Brexit are being made. A Bloomberg survey yesterday showed economists and forecasters talking about levels below 1.30 in the days following a vote to leave the EU.
Mark Carney and members of the Monetary Policy Committee weighted in on sterling yesterday by attributing some of the weakness in recent weeks in GBP pairs to referendum uncertainty. The Committee Chairman Andrew Tyrie MP said that he did not want to dwell on the referendum too long as Mark Carney would be testifying on it on March 8th however, other notes from Bank of England policymakers have held sterling’s head under water for longer.
Lower = better
Both Martin Weale and Governor Mark Carney both agreed that the fall in sterling was good news for the UK, given its recent strength in trade-weighted terms against the euro and the subsequent pressurising effect it has had on inflation. Those kind of comments display a happiness for the currency to keep on making new lows.
There are a lot of news pieces floating around this morning asking how low can the pound actually fall? “How low can X go?” pieces are normally a sign of a bottom but you’d be a braver man than I to begin betting on an immediate bounce back for the pound.
Global weakness confounding policymakers?
Away from the pantomime and bluster of the EU referendum the news is not much better. Equities and commodity currencies have been sold solidly through the Asian session as investors retreat to the side-lines from a market that is still pessimistic about growth, commodities and, maybe most importantly, the ability of central bank policymakers to make a difference. With an absence of central bank action in February – March is stacked with policy announcements – doubts over the efficacy of already extraordinary measures have crept in to the market psyche and the selling has increased.
The Day Ahead
Today’s data calendar is unlikely to stand in the way of that. Strong reports from US homebuilding companies in the past few days leads us to believe that today’s New Home Sales number from the States should allow recent strength to extend.
Oil prices have continued to trade lower in the past few sessions following comments from both Iran and Saudi Arabia about supposed production cuts. Initially Iran said that the Saudi/Russia production cut plan was ‘ridiculous’ which was then followed by the Saudis saying that they were not banking on supply cuts due to a lack of trust. Much like currency wars are a zero-sum game, increased oil production is a curse over everyone’s houses.