Ahead of big day Sterling stages a comeback, but for how long?
The tragic news of Labour MP Jo Cox took centre stage on Friday and all EU referendum campaigning was suspended until Sunday. Sterling consequently benefitted from a break from Brexit-related news and the resultant change in sentiment. Sunday saw the release of the polls that were due for publication on Friday. The overall consensus of these polls (conducted before Friday’s events) suggested that the ‘Leave’ campaign’s momentum may have stalled. However, there were still a significant proportion of unknowns and a high degree of uncertainty.
Sterling used this opportunity to further recover, opening this morning just below 1.4600 against the Dollar and at 1.2861 against the Euro. Expect further volatility today as although there is no key economic data due for publication in the UK, more polls will be released just three days before the referendum.
In the US, there was mixed housing data released on Friday. Housing starts for May beat expectations while the number of new building permits issued fell below the general consensus. Although with the UK referendum looming, the data only serves as a gauge of the US economy rather than market moving data.
Overall, there was general Dollar weakness on Friday as investors continue to doubt whether the Federal Reserve will be in a position to raise interest rates in the short term. Testimony from Fed Chair Yellen will be watched very closely this week, although it is unclear what more she can add after last week’s press conference.
There was a very quiet day for the Euro on Friday as European Central Bank President Draghi failed to comment on market conditions when he spoke in Munich. Because of this, the Euro was driven by market conditions elsewhere, with the UK’s EU referendum acting as the primary force. Today German PPI inflation data was released, showing an increase from 0.1% to 0.4%. The Eurozone will need more positive data to directly impact the market, however.
Data to watch: 7am German May Producer Price Index, month-on-month & year-on-year. 11am German Buba Monthly Report.