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Leave camp weighs heavily on Sterling

  • GBP Retail Sales m/m: 0.9%
  • EUR Final CPI y/y: -0.1%
  • EUR Eurogroup Meetings
  • GBP MPC Official Bank Rate Votes: 0-0-9
  • GBP Monetary Policy Summary
  • GBP Official Bank Rate: 0.50%
  • USD CPI m/m: 0.2%
  • USD Core CPI m/m: 0.2%
  • USD Philly Fed Manufacturing Index: 4.7
  • USD Unemployment Claims: 277K

The narrative of the week remained unchanged on Thursday as the prospect of a ‘Leave’ vote in next week’s referendum continued to weigh heavily on the markets and the Pound. The pressure was intensified as another poll was released yesterday showing the Leave campaign taking the lead. The Ipsos MORI poll for the Evening Standard newspaper shows Leave with 53 per cent of the vote and Remain campaign on 47 per cent. 

The negative impacts of a Brexit were reaffirmed by the Bank of England, as the potential vote to leave was the main focus of the June Monetary Policy Summary. In the minutes, the referendum was cited as “the largest immediate risk facing UK financial markets, and possibly global financial markets … it appears increasingly likely that, were the UK to vote to leave the EU, Sterling’s exchange rate would fall further, perhaps sharply”. This kept the Pound on the back foot. 

Sterling’s losses came in spite of the data released. On Wednesday night, a dovish Federal Reserve FOMC meeting saw Chair Yellen decide once again not to raise interest rates and pointed to “headwinds blowing on the economy" as a factor in this reduced outlook. Further to this, the UK data for Thursday was positive as UK Retail Sales posted a much better than expected 0.9% reading, strongly ahead of the 0.3% prediction. However, this contrasting news was not reflected in GBP/USD, as the market continues to remain focused on the referendum. 

Away from the markets, the main development from the referendum campaign was the suspension of both campaigns. This came after the shocking attack on The Member of Parliament for Batley and Spen, Jo Cox, who has been hospitalised in a critical condition after being shot and stabbed several times in her West Yorkshire constituency. 

  • EUR ECOFIN Meetings
  • CAD Core CPI m/m
  • USD Building Permits
  • USD Housing Starts
  • EUR ECB President Draghi Speaks
  • CAD Gov Council Member Wilkins Speaks

The week ends with light data, with the only higher tier data release coming from the US in the form of building permits. This will be released at 1.30pm and a small amount of lower significance EU data released earlier in the day. The building permits are forecast to improve. We would expect the referendum to continue to be the main driver of price action today.