06/10/16 - Sterling Falls to New 31-Year Low

GBP

Sterling dipped below post Brexit lows on Wednesday, with fears of a 'hard' Brexit from the European Union pushing the currency to a five-year trough against a broadly stronger euro. This was despite a strong PMI services figure of 52.6 in the UK. The pound has been buffeted for a fortnight by worries that Britain will prioritise curbing immigration over promoting trade in its divorce from the bloc, thereby gumming up labour markets, curbing foreign investment and leading to cutbacks by banks and other global companies.

A report on Tuesday commissioned by financial consultancy firm Oliver Wyman said Britain's financial industry could lose up to 38 billion pounds ($48.3 billion) in revenue in a 'hard' Brexit that left it with restricted access to the EU single market. In addition, the threat of a squeeze on the foreign investment that Britain needs to fund its current account shortfall - now a record 7 percent of national output - have outweighed signs the economy was riding out the immediate impact of the Brexit vote this year.

 

EUR

 

The euro soared to a five-year peak against the struggling pound on Wednesday and scaled a three-week high against the yen, bolstered by rising euro zone government bond yields. Most euro zone bond yields rose to two-week highs in European trade, a day after a Bloomberg article cited sources as saying the European Central Bank would probably wind down its bond buying gradually before ending quantitative easing.

 

USD

The greenback had been on a strong footing after rallying at the start of the week on an upbeat survey of the U.S. manufacturing sector.

It got an additional lift after Richmond Federal Reserve President Jeffrey Lacker said on Tuesday there was a strong case for raising rates. Data for the dollar yesterday painted a mixed picture with the ADP figure coming lower than expected at 154K and the ISM non-manufacturing PMI figure coming in higher than previous at 52.3. Nevertheless, the dollar index was down 0.1 percent at 96.063, having risen to 96.442 on Tuesday, its highest since Aug. 9.
 

Key Announcements

13.30 – USD : Unemployment Claims; Forecast at 255K against a previous of 254K