US Dollar edges higher on fresh Brexit polls and dovish Draghi
22/Jun/2016 • Currency Updates•
The US Dollar edged higher against its major peers on Tuesday, with a fresh Brexit poll showing growing support for the vote to ‘leave’ pushing down both the Pound and the Euro.
The latest poll from Survation showed support for the ‘leave’ campaign had risen to 44%, a marginal one percent behind the vote to ‘remain’. This sent the Pound lower against the US Dollar for the day, having earlier in the session rallied to its strongest position against the Greenback in five-and-a-half months following a remarkable surge on Monday.
Currency markets remain fixated on the outcome of this Thursday’s referendum. Last minute opinion polls appear to be driving almost every major currency with just one day to go until the vote on EU membership.
Join our twitter chat today at 3pm. I’ll be discussing what to expect from Sterling on referendum day with our Chief Risk Officer Enrique Diaz Alvarez.
President of the European Central Bank Mario Draghi also reaffirmed our expectation that the ECB is likely to announce an increase in its monetary easing measures at some point in the coming months.
Draghi highlighted the still fragile state of the global economy, claiming that further stimulus measures are ‘in the pipeline’. We expect the ECB to stand pat until at least the September meeting, where it could announce a new raft of easing measures should inflation fail to show any meaningful pick-up in the coming months.
Federal Reserve Chair Janet Yellen also spoke yesterday, reiterating many of her comments from last week’s FOMC meeting. Yellen remained upbeat about the state of the US economy, although claimed the central bank’s cautious approach to rates was appropriate amid the recent slowdown in the US labour market.
Yellen will be speaking again today as she continues her two day testimony in front of Congress in Washington. The focus, however, will be firmly on developments in the UK ahead of tomorrow’s referendum.
Major currencies in detail:
Sterling fell 0.3% against the US Dollar yesterday, although continued its rally versus the Euro, appreciating by 0.5% to a three week high.
The UK currency continued to show its vulnerability yesterday ahead of Thursday’s vote, with the latest polls continuing to suggest the outcome will be too close to call.
Polls open at 7:00 tomorrow, with the results likely to begin filtering through from around 00:30 on Friday. A final result is expected to be announced at around 7:00 on Friday morning once all 382 areas are counted.
No UK economic data is out today, with focus firmly on Thursday’s referendum. Currency volatility is likely to be sky high.
Some dovish comments from Mario Draghi and a narrowing in the latest Brexit polls sent the Euro 0.75% lower against the US Dollar on Tuesday.
Mario Draghi reiterated much of what we already knew yesterday, namely the ECB is ready to act with all instruments if necessary. We continue to expect some form of additional monetary easing from the Governing Council in the final quarter of the year which, in our view, should recommence the Euro’s downward path against almost every major currency.
Away from the ECB, economic sentiment from ZEW surprised on the upside yesterday. Confidence in the domestic economy in both Germany and the wider Eurozone increased, with the former rising significantly to 19.2, from 6.4.
Consumer confidence this afternoon will likely be overlooked, with attention solely on the UK referendum.
The US Dollar rose 0.6% yesterday, with strong gains against both the Euro and the Pound.
As expected, Fed Chair Yellen continued to reiterate the Federal Reserve was unlikely to rush its monetary tightening cycle this year amid a weak global economy and slowing labour market. The Fed is likely to keep rates low for ‘some time’, echoing last week’s ‘dot plot’ which showed that policymakers had lowered their expectations for long term interest rates in the US.
However, Yellen did suggest that the recent slowdown in the labour market was temporary, with tentative signs that wage growth may be finally picking up. This follows last month’s dismal nonfarm payrolls report, which showed job creation slowed to a six year low in May.
Janet Yellen continues her testimony at 15:00 UK time today, although attention will be almost solely on the UK referendum.
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