- Pound (GBP) Falls as ‘Brexit’ Bets Rise – UK leaving the EU seen increasingly possible
- US NFP Data Shocks Markets – Change in Non-Farm Payrolls undermines Fed rate hike bets
- US Unemployment Down – But figure marred by other labour figures, poor ISM Composite
- Forecast: Yellen Speech Expected During US Session – Fed Chairwoman could follow up on NFP
The Pound to US Dollar (GBP/USD) exchange rate has been unable to maintain its strength over the last week, with the increasingly volatile pair falling victim to market fluctuations on ‘Brexit’ bets and Federal Reserve rate hike bets.
GBP/USD briefly jumped to 1.4515 on Friday due to shocking US data, but looked to continue the Pound’s previously bearish run in the new week’s trading session after the pair plummeted to a three-week-low of 1.4362. GBP/USD currently trends in the region of 1.4395.
Pound (GBP) Slumps as ‘Brexit’ Fears Take Hold
Increased favour towards the EU Referendum’s ‘Leave’ campaign, as seen in last week’s polls, looked to continue on Monday morning. A new slew of polls were released, indicating that among those asked, a ‘Brexit’ would be the ideal outcome of the June 23rd EU Referendum.
As the Pound’s future in the currency market would be heavily uncertain if the UK were to leave the EU, the currency plummeted due to investor concerns.
According to an article in The Telegraph, the Pound’s volatility reached levels not seen since the 00s financial crisis, with volatility levels at their highest since the beginning of 2009.
‘The price of insuring against swings in the Pound against the Dollar surged to 21.5pc after a YouGov poll showed 45pc of Britons would vote to leave the EU in the June 23 vote. The online poll of almost 3,500 people showed 41pc said they would vote to stay in.’
As well as the YouGov poll mentioned by the Telegraph, other polls released on Monday also showed a strengthening lead for the ‘Leave’ camp.
This includes an online poll from The Guardian, putting ‘Leave’ at 43% and ‘Remain’ at 40%, while 14% didn’t know what they would vote. The latest ICM poll also put ‘Leave’ ahead with 48% and ‘Remain’ with 43%, with each camp gaining and losing one point each respectively since last week.
This news saw the Pound being dragged down to new lows on Monday, despite generally optimistic PMI scores last week. Friday’s key Services score for May improved from 52.3 to 53.5, beating the expected 52.5, while the overall Composite score came in at 53.0, improving from 51.9 and the expected 52.3.
US Dollar (USD) Battered by Poor NFP Data
The US Dollar is still relatively weak on Monday after its considerable decline on Friday. A slew of highly anticipated and influential data from the US released during Friday’s US session highly disappointed investors, leading to a plummet of Federal Reserve rate hike bets.
While the key US unemployment rate dropped to 4.7%, this has been cited as being due to a large number of unemployed giving up in the search for work in May.
The change in Non-Farm Payrolls (NFP) was by far the biggest factor in the US Dollar’s plummet. Investors were prepared to increase bets of a June interest rate hike if the figure came in at 160k or higher, but economists were instead shocked by a low 38k score.
As the NFP report is one of the most vital reports in weighing up the chances of a Federal Reserve interest rate hike, bets that the Fed could choose to hike rates in June plummeted.
Bets were previously shaky as investors believed the Fed would be unlikely to hike rates with Britain’s EU referendum right around the corner.
Other data that harmed US Dollar sentiment on Friday included the average weekly labour hours report, which worsened from 34.5 to 34.4.
The key ISM Non-Manufacturing Composite report also let down expectations of 55.4 by dropping from 55.7 to 52.9.
However, the US Dollar’s bearishness eased slightly on Monday as investors indulged in a bout of profit-taking from the US Dollar’s new lows against many majors. Increased bets of a ‘Brexit’ also saw the US Dollar favoured over the Pound.
Pound Sterling to US Dollar (GBP/USD) Exchange Rate Forecast: Yellen Speech Ahead
With the shockingly disappointing Non-Farm Payrolls report still so recent, investors are certain to keep their eyes fixated on the Federal Reserve as Chairwoman Janet Yellen is expected to speak in Philadelphia during the US session.
If she plays down the significance of the disappointing NFP scores, June Fed hike rate bets could soar.
On the other hand, if she focuses on the NFP as a reason for the Fed to maintain its gradual and steady approach to rate hikes this may be enough for economists to completely drop June rate hike bets.
As a result, the US Dollar’s movement could drive GBP/USD in the coming day, but any new developments in ongoing ‘Brexit’ debates could also influence the pair.
The ‘Remain’ camp are set to step up their arguments, with only around half a month to go until the EU Referendum vote, and as a result UK data may be increasingly unlikely to influence the volatile Pound.
Regardless, Britain’s economic calendar for the week is relatively quiet, with the first set of influential data not due for release until Wednesday’s industrial and manufacturing production reports.
The Pound Sterling to US Dollar (GBP/USD) exchange rate currently trends in the region of 1.4395, while the US Dollar to Pound Sterling (USD/GBP) exchange rate trades at around 0.6950.
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