"Brexit" Uncertainty Rattles British Pound

Daily Analysis - 23/02/2016

British Pound Falls on Brexit Uncertainty


The 'out' camp in the "Brexit" debate gained traction as London Mayor Boris Johnson, the most popular figure in UK politics, endorsed a campaign for Britain to leave the EU. The move came amid growing opposition to British PM David Cameron, who got back from Brussels on Saturday with a deal in hand to grant special status to the UK as a part of the EU. The British Pound fell strongly in the European open and continued to post a steady decline, losing over 2% at one point, marking the strongest intraday declines this year.

Pound Under Pressure

The British Pound fell sharply yesterday following the developments over the weekend. British PM David Cameron got back from Brussels following a deal which includes various adjustments as well as granting 'special status' to the UK. The Brexit referendum will be held on June 23rd. The Pound, which closed Friday on a positive note fell sharply in the opening session as more voices grew in support of the UK leaving the EU, including the Mayor of London, Boris Johnson. The British PM faces strong opposition from within his own party ranks as well the Euroskeptic parties which are rallying for the UK to exit from its EU membership. GBPUSD declined test session lows to $1.4173, losing -1.74% for the day.


EuroZone PMI Lowest in a Year

Flash manufacturing and services PMI's released yesterday by Markit showed the lowest print this year at 51 and 53, respectively. Germany's flash manufacturing PMI also touched a 15-month low in February, falling to 50.2, signaling near stagnation in the sector and highlighting the fact that Germany's manufacturing sector could be pointing to a slowdown in the economy. The slowdown also affected hiring in the sector with data showing one of the weakest net increases in employment in nearly five months. The data released by Markit shows that deflationary pressures intensified, as average prices of goods and services declined at a steep rate as firms competed to boost sales. The Euro, which was trading weaker against the Dollar since the early trading session saw a sharp decline in intraday trading, posting session lows to 1.1028.


US Manufacturing Lowest Since 2009

US Flash manufacturing PMI data released yesterday fell to 51.0 in February, compared to 52.4 in January. The data from Markit fell to the lowest level since September of 2009, falling well below the estimates of an increase to 52.5. Markit chief economist Chris Williamson noted that US factories were reporting the worst business conditions in nearly three years and that all sub-indicators including output, order books, employment, inventories and prices were pointing to a warning in the health of the US manufacturing sector. Given that manufacturing contributes to a major portion of GDP, the manufacturing PMI is closely followed by the markets as it points to any early developments in both the labour market as well as GDP. Following the release, the US Dollar pared its gains.


German GDP and Swiss National Bank Statement Due Today

Germany's GDP data is on the tap today, with the fourth quarter economic growth estimates to rise 0.30%, unchanged from the previous estimates. Germany's GDP growth on a year over year basis is expected to remain unchanged at 2.10%, posting a modest recovery after the Germany economy expanded at a pace of 1.60% a year before. Swiss National Bank President Thomas Jordan is expected to speak later in the day during the European session in Frankfurt. Any references to the Swiss Franc's exchange rate could see some volatility in the currency especially as his comments come just a few weeks before the ECB's March policy meeting. From the UK, inflation report hearings are due but it is doubtful if the Pound will react, as focus now firmly sits on the Brexit debate in the run up to the June 23rd referendum.


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