Heavy losses for sterling as referendum month arrives

1 June, 2016

Rob Bastin

After a buoyant month for the pound it seems that the speculative run ahead of the referendum has come to an end, as we are now just weeks away from the referendum decision, the inevitable uncertainty is starting to rear its ugly head once again. After closing last week close to 4 month highs, the pound was sold heavily yesterday despite any driving data, but instead reacting to the latest poll from the Guardian which showed a lead for the ‘leave’ camp by 3%. Traders were quick to take the opportunity to knock the pound off its unstable perch in what will likely trigger the next downward push for sterling, with no telling how the polls will develop in the next few weeks and how low this movement could go. A lot of money has already been placed on the UK staying in the EU and so any new concerns that this may not be case could see a rough ride for the pound over the next few weeks.

There were a couple of economic releases elsewhere yesterday worth mentioning, starting with the latest inflation and unemployment levels for the Euro-zone. These results both met market expectations exactly with the unemployment rate remaining at 10.2%, and inflation struggling at -0.1% year on year. The euro traded flat for most of the day yesterday but made nearly 2 cent gains against the weak pound. In the afternoon latest growth figures for Canada were also announced and results were somewhat short of forecasts. Monthly growth actually contracted by 0.2% which pushed the annual figure to just 2.4%, half a percent shy of analysts’ forecast and a result that made the Loonie much cheaper to buy in the afternoon session.

In the early hours Australia also announced their latest growth figures with a slow down to 2.8% from 3% being the expected outcome, however actual figures showed a greater pace of growth than last month at 3.1% on the year. The Aussie Dollar has rallied further against the pound overnight gaining more than 5 cents in just 24hrs. Buying rates however are still excellent sat some 15 cents higher than there were just 6 weeks ago.

Today sees the start of a new month, and with it comes the usual raft of data for the big 3. Manufacturing PMI is the main focus for today with the EU figures at 9am, UK at 9:30am and US at 3pm. Good figures for the dollar could see some big movement in the next couple weeks as the Federal Reserve approach their next potential rate hike.