Yellen keeps US Dollar rate steady

Federal Reserve Chairman, Janet Yellen, used a keynote speech yesterday to warn that the US economy could be adversely affected by a British exit from the EU, but kept the door open for US interest rate rises in the next couple of months. The US Dollar was steady after her speech, which was non-committal on an interest rate rise at the next Fed meeting on June 15th, although she said that the result of the UK referendum would be an influential factor on US interest rates, which have been on hold since the Federal Reserve raised rates by 0.25% in December.

Ms Yellen did say that “positive economic forces have outweighed the negative” in the USA, a hint that interest rates will rise this summer despite Friday’s disappointing jobs data, which is not likely to be good news for buyers of US Dollars or currencies pegged to it.

The US Dollar strengthened against the Euro after the speech, but was steady against the Pound, which currently appears to be immune to economic data while the referendum question retains such a huge pull over GBP’s direction.
Quiet day for GBP-EUR rates

Closer to home the Pound yesterday had an unusually quiet day against the Euro. Having fallen back slightly in the morning to hit a 3-week low, sterling recovered in the afternoon, to end the day more or less where it started and having moved only +/- 0.8c throughout the day. There was a lack of economic data yesterday, but more importantly no new opinion polls showing a change in support for a Brexit – which have sent sterling 6c lower against the single currency in the last week.

With only 2 weeks and 2 days left to polling day, time is running out for those of you waiting for an improvement in exchange rates. Unless we see a significant swing back towards the ‘Remain’ camp, it seems unlikely that sterling will be reaching the heights of a fortnight ago, and remember that some analysts have predicted a fall in the Pound’s value of 10-20%, should the UK vote to leave the EU on June 23rd.

Indeed an ‘implied volatility’ index compiled by Bloomberg, and based on Options markets, shows sterling volatility has doubled in the last month. A less technical approach was cited by Boris Johnson, who exclaimed that the Pound “will go where it will over the short term”. The BBC website carries a useful article discussing the fate of the Pound in the case of a Brexit scenario, and is recommended reading at http://www.bbc.co.uk/news/business-36464502..

Australian Interest rates held
Overnight, the Reserve Bank of Australia kept its headline interest rate at 1.75%; an Aussie interest rate cut would not be a surprise as its economy struggles with deflation and a lack of investment. The AUD gained value after the announcement, with GBP-AUD falling around 2c, the Australian Dollar is now 4% more expensive than just 3 weeks ago for those of you sending money to Australia.

Data today
Although the referendum campaigns are likely to be by far the most important influences on sterling in the next 16 days, we do have Eurozone GDP released this morning at 10am which could move GBP-EUR rates, with 0.5% growth for the first quarter this year the expected figure.