A day of calm for currency markets

26 July, 2016

Robin Haynes

Yesterday saw one of the least volatile days for the Pound in months, as we saw exchange rates fluctuating by only 0.4c and 0.5c for the Pound against the Euro and US Dollar respectively. This was despite a CBI survey showing business optimism falling to its lowest since January 2009, and prompted the CBI’s chief economist, to say: “It’s clear that a cloud of uncertainty is hovering over industry, post-Brexit. We see this in weak expectations for new orders, a sharp fall in optimism and a scaling back of investment plans.”

But certainly the market seems to have calmed down now that we have a new team in government, awaiting developments in the Brexit strategy which will surely trigger more significant volatility later in 2016.
Yesterday’s absence of any movement for sterling came after a drop in exchange rates at the back end of last week, after disappointing manufacturing and services data, and the Pound does remain sensitive to any further indications that the economy is stalling among Brexit uncertainty; on Wednesday we have UK GDP figures but these only cover Q2, from April to June, so will not reveal any more post-referendum economic boom or bust. The same can be said of this morning’s UK June mortgage data, although on Friday we do have consumer confidence for July which will be interesting in the light of last week’s industrial figures.

Meanwhile there are immediate political questions for the government at home, such as Irish border arrangements, and renewed pressure for Scottish independence; the preservation of the Union is surely crucial for the Pound’s ongoing value. In fact, it could be argued that the Pound has been remarkably resilient since the referendum result, and many analysts believe there is potential for another step drop in sterling’s value, if and when we get close to triggering the now notorious Article 50.

Dull day ahead
There is no major data in the UK or Europe due out today, apart from UK mortgage approvals, although in the States we do have consumer confidence and home sales this afternoon. The US Dollar will be susceptible to movement on Wednesday evening, when the Federal Reserve announces its monthly interest rate decision along with accompanying policy statement.