Brexit uncertainty like Xmas hangover for Sterling
Following a very strong jobs report on Friday the dollar has continued to strengthen, though much of its strength is not necessarily from the economic data. Non-Farm Payrolls came in at 292K, way above the forecast 200K. Average hourly earnings also grew but less than expected, it must be noted that EURUSD didn’t react too wildly to the data release. Much of the Greenbacks weight is being attributed to the risk off attitude of investors, and the flow to safe haven currencies such as the Dollar and Euro.
GBPUSD mostly persisted in a staunchly bearish stance as Sterling continued to founder on the Bank of England’s (BoE) indeterminate monetary tightening timeline. With the Fed having already begun raising rates in December and presumably on track for more hike(s) this year, and the BoE still uncertain as to its own monetary tightening cycle, further losses could potentially be in store for the Pound.
We’ll have to wait until Tuesday for Sterling data when the focus will be on the UK production data and, until Thursday for the BoE policy meeting and minutes of that meeting. A loss of momentum in UK activity (especially in manufacturing), ongoing low headline inflation and modest wage growth and global uncertainty are good reasons for the BoE to keep a “wait‐and‐see mode” on a first rate hike.This is weighing on sterling. A sustained rebound will be difficult unless there is progress in the Brexit debate or unless risk sentiment improves.
With a quiet economic calendar today focus is likely to be on Fed-speak. Rhetoric from Dennis Lockhart and Robert Kaplan of the Fed will be keenly looked on to see if they indicate how the current market volatility will affect the path of normalising rates for 2016.
Data to watch: 3pm US Labour Market Conditions