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Profit-taking mutes Sterling momentum

Profit-taking mutes Sterling momentum

Last week was a positive week for Sterling, but gains made through the week fell back slightly on Friday. GBPUSD fell 1% from 1.4660, and GBPEUR similarly fell 1% from 1.3061. This came as a TNS ‘Brexit’ poll was released Friday morning which showed the ‘Leave’ campaign as having a lead of 3 points. Volatility is to be expected as more polls are released from reputable sources. The three most recent polls – YouGov, IPSOS Mori and TNS have each shown slightly different results, and each moved the currency markets.

There is a lack of economic data due at the start of this week from the UK. The upcoming EU referendum will therefore take centre stage this week, especially with Boris Johnson and David Cameron due to debate on Thursday – expect volatile trading conditions around Sterling.

The Euro rose against the Pound on Friday afternoon after traders closed positions for the weekend to lock in profits made during a surge in Sterling strength last week. Ongoing European Central Bank (ECB) bond purchases are still having some impact as they are suppressing Eurozone yields, which also curbs the potential for wider Euro support .

The Eurozone composite PMI is expected to see little change in May, with the consensus looking for a marginal improvement (from 53 to 53.2). EMU Consumer confidence improvements, however small, could push GBPEUR further from the 1.3000 mark.

The Dollar strengthened against the Pound on Friday, as positive economic data and Wednesday’s unexpectedly hawkish Federal Open Market Committee (FOMC) minutes gave the Dollar bulls the upper hand. US Existing Home Sales increased to an annual rate of 5.45mn for April from an upwardly-revised figure of 5.36mn for the previous month.

Over the weekend, San Francisco Fed President Williams appeared slightly more cautious over the potential for a June rate increase while Boston head Rosengren appeared ready to increase rates in June. Comments from Fed officials will be watched closely for any indication on the timing of the next rate hike.

The Dollar opened Friday at 1.4611 against the Pound, but the positive sentiment surrounding the Greenback pushed the pair down throughout the day. GBPUSD opens this morning at 1.4507, showing a 0.71% gain for the Dollar from Friday’s open. EURUSD traded with little volatility on Friday, as the pair consolidated above the 1.1200 level after a strong week of gains for the Dollar.

Data to watch: 8.30am German May Markit Purchasing Managers Indices, Services, Manufacturing & Composite. 9am Euro May Markit PMI, Services, Manufacturing & Composite. 11.15am US Fed’s Bullard Speech. 1pm US FOMC Member Williams speech.

2.45pm US May Markit Manufacturing PMI. 3pm Euro May Consumer Confidence. 11.30pm US FOMC Member Harker speech.

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