The Forex Week In Review
The main focus of markets this week was the conclusion to a story which has been driving flows and shaping sentiment for weeks now; the UK’s EU membership referendum. Wit polling results roughly neck and neck just days ahead of the voting and bookies odds showing the Remain campaign to be the clear favourite, we has seen a strong relief rally in Sterling which soared against its major trading counterparts. However, once the voting was done and the data from private exit polls commissioned by various banks and hedge funds started to come in, we saw Sterling sharply reversing its gains to trade aggressively lower.
By 5am the news was in that according to BBC forecasts the Leave campaign were comfortably ahead and set to take the official announcement. These reports confirmed the large moves already taking place by that time and fuelled yet further heavy selling of Sterling which fell more than 10% against the US Dollar marking It’s biggest daily loss since records began in 1971. In response to the situation the Bank of England say they are “monitoring developments closely” and will take “all necessary steps”.
Despite the parabolic moves in Sterling, shorty after the London open we saw massive profit taking on short moves with markets ripping higher highlighting the lack of liquidity and highly volatile nature of markets in the wake of this dramatic event. With the voting done and initial moves finished the real consequences for Sterling and indeed, markets in general, remains to be seen over the coming weeks as big money starts to move.
USD Two days of testimony be Fed Chair Janet Yellen did little to offer hope for the prospects of a US rate rise in the coming months. During her testimony to the Senate Banking Committee the Fed chair said that Brexit will pose significant risk to the US economy and global financial market stability. Amid uncertainties on global development, Yellen added that “cautious approach remains appropriate”. With Britain having voted to leave the EU, US rate hike expectations are now being unwound in line with these comments.
EUR The Euro was under significant pressure from the UK’s decision to leave the EU which saw the single currency collapse lower against the US Dollar yet surge higher against Sterling. Markets now await response from the ECB who cautioned before the voting that they stood ready to cushion markets with liquidity in the event of Brexit.
GBP Sterling suffered its largest intraday loss on record as massive declines ripped through the early hours of Friday morning as banks and hedge funds acted on the the private exit poll data they collected. With the UK having voted to leave the EU, it remains to be seen what the medium and longer term consequences will be with most forecasting severe damage to the UK economy on capital outflow.
JPY The Japanese Yen was dramatically higher this week, reversing its initial weakness, on news of the UK’s decision to depart the EU. As Asian markets went into tailspin on Friday , safe haven buying kicked in taking the Japanese Yen back through highs. Traders now await response from the Bank of Japan who will surely have to deal with this latest round of JPY strength.
AUD AUD tracked the move sin risk markets in response to the UK’s leaving of the EU which saw AUD sliding against all but the British Pound. Minutes of the Reserve Bank of Australia’s (RBA) 7 June meeting revealed the central bank considered the current policy setting as appropriate for promoting sustainable economic growth and returning inflation to target over time.
CAD The Canadian Dollar weakened in response to the UK’s decision to leave the EU, mapping the moves seen in Oil prices which tumbled on the news. Traders are increasing their expectations of further Bank of Canada easing in coming meetings .