Sterling crumble continues

Wednesday’s trading was another bad day for the British pound despite there being no economic data releases throughout the UK session. The pound has been dropping heavily over the last week, losing over 4 cents against both the Euro and the US Dollar. This drop has come despite some good data during this period as the overall sentiment and negative trend is very much driving the market. Recent polls for the EU referendum have indicated a close to 50/50 split which is the likely factor causing a further Sterling sell off in recent days. So long as the threat of leaving the EU remains, investors will continue to look for alternative investments in the run up to June, and so as bad as things may seem currently, they could still get a lot worse with the decision not until the end of June.

The only key event from yesterday’s calendar was the FOMC minutes in the US last night at 7pm. The currency markets have recently been pricing out any expectation of another US rate hike in the coming 2-3 months, with the Federal Reserve taking a more dovish tone at the last meeting due to slowing growth and inflation. This has allowed the Euro to continue gaining in strength against both the Pound and the USD and so these minutes could also be important for Euro buyers as well as those with an interest in the greenback. Markets were looking for an indication on the timing of the next hike and the minutes showed that a couple of the FOMC members saw a rate hike in March as appropriate, although the majority still favoured a delay sighting further downside risks to the economic outlook. This has lead to markets maintaining their expectations of 2 more rate hikes in 2016, most likely in June and December.

The day ahead is another quiet one on the calendar so as with recent weeks we should expect the trend to continue to drive exchange rates, with last nights’ announcement also likely to be in consideration. The next main UK data release is Friday morning with Manufacturing and Industrial Production figures however not even good figures have been able to support the struggling pound in recent weeks.