We’ve chosen, what now?
The Pound plunged to a 31-year low on Friday, reflecting the deeply bearish mood surrounding the currency after Britain voted to leave the European Union on Thursday. Cable (GBPUSD) fell over 13% in the early hours of Friday after the initial shock of the results. The pair did manage to bounce back towards the 1.4000 level, but the uncertainty surrounding the implications for the UK economy of the “Leave” vote caused the Pound to sell off and drift towards 1.3600 over the course of the day.
British politics is in disarray in the aftermath of Friday’s news with no clear leader available to dispel the uncertainty surrounding Sterling. The European newspapers are all commenting from a populist angle, fueling speculation about a “contagion” risk of other referendums. The sentiment around GBP has worsened over the weekend as market participants continue to assess the political and economic implications of the ‘Leave’ win at last week’s referendum.
Attention has now turned to today’s meeting between German Chancellor Merkel, Italian Prime Minister Renzi, French President Hollande and President of the European Council Tusk, and the likeliness of the UK to invoke Article 50. European Central Bank (ECB) President Mario Draghi will also speak today and will most definitely discuss post-referendum advances and changes that will happen to the European economy’s monetary policies.
Across the pond, the US performed poorly on Friday with most major releases coming in below consensus. The core durable goods orders fell for May, posting -0.3% versus the +0.2% expected. Also, both the Michigan Consumer Expectations and the Michigan Consumer Sentiment both missed the mark for May.
Although the data is not market moving, it provides Federal Reserve Chair Janet Yellen with an overview of the strength of the US economy. Today, the US goods trade balance and Services PMI are due for release, with strong numbers likely to push the Greenback higher.
Data to watch : 12.30pm Goods Trade Balance. 1.45pm Services PMI. Post Brexit Summit Berlin.