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Terror attacks exacerbate risk aversion

Terror attacks exacerbate risk aversion

GBPUSD tanked to 1.4251 at the beginning of yesterday, tracking the slide in stocks, along with fears of a ‘Brexit’ fueled by the latest terror attacks. The pair recovered up to the 1.4300 levels following the release of local CPI and PPI data, but was unable to hold above 1.4300. UK CPI printed at 0.3% on a yearly basis as expected, but came in at 0.2% (MoM), missing expectations. The core reading remained steady at 1.2% annually.

The markets believe that atrocities like yesterday’s terror attacks in Belgium, multiple attacks in Paris in the last year and an underlying anti-immigration sentiment in the EU could have a large impact on the June 23rd In/Out Vote. With the markets concerned about the potential economic impact of a pro-Brexit vote, Sterling will struggle to generate strength following yesterday’s events and opens lower against both the Dollar and the Euro this morning.

There was a similar impact for the Eurozone as we saw European stocks down after the news of the terror attacks, despite positive data printed in the Eurozone yesterday. The European PMI’s all came in above 50 as expected, which is seen as bullish for the Euro, however EURUSD saw lows of 1.1187 and the GBPEUR plummeted by almost 1%, currently trading around its support levels of 1.26.

The Dollar strengthened against the Pound following the events in Brussels as it led to a Sterling sell off, and safety flows to Gold, Yen and the Dollar. The Markit Flash US Manufacturing Purchasing Managers’ Index (PMI) came in at 51.4, up marginally from 51.3 in February but missing estimates of 51.9. GBPUSD continued on its downward trend in the Asian session overnight underpinned by hawkish comments from U.S. Federal Reserve officials, suggesting that further rate hikes could be possible as soon as next April.

The data docket is relatively empty today, except from US New Home Sales due 2pm.

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