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25 Apr 2016

Brexit or Bremain that is the question

United States Dollar: No data between the two currency locations yesterday worth mentioning. This meant focus moved over to this week’s interest rate decision from the US and ongoing discussions surrounding the Brexit vote at the end of June. However, I say the Brexit vote when there is a new portmanteau in town with the recent shift in opinions on a UK exit vote – Bremain. Sterling has been the largest loser since the start of the year mainly on the uncertainty that surrounds a UK exit from the EU, but recent momentum has been gained with the remain viewpoint with an early poll last week and everyone from Jo Johnson (Boris Johnsons brother) to Barack Obama coming out in support of the “Bremain”. Investors have taken note of this and positions taken betting on a weaker Sterling have been lessened one fifth. This has helped Sterling push higher. This means that the percentage loss to gain, depending on the rate vote, has now changed as we are now expecting a 15 % loss on a leave versus 5 % gain on a remain.Ahead, we see two key releases from the US. The first coming in the form of durable goods orders, with markets anticipating a revised figure of 0.6 % from the previous negative 1.3 %. The other key release is US consumer confidence. This is both ahead of the FED rate announcement on Wednesday. Early predictions believe there to be no change, but with a Hawkish viewpoint to a June rise. Movement in the build up to the release will likely be cautions, bearing in mind the recent upward movement in Cable.

We expect a range today in the GBP/USD rate of 1.4320 to 1.4610

Euro: The Eurozone held the only release worth noting yesterday. Early doors Monday saw German Ifo business climate unexpectedly fall with the figure coming in below expectation and marginally lower than the March release. Being a leading indicator of economic health, it shows Europe’s largest economy is losing some of its pace. This saw some Euro losses early yesterday. As Sterling was on the rise against most currencies on the basis of the Bremain viewpoint entering in the market (see the United States Dollar commentary), Pound pushed higher against the single currency. It is believed that the vote could now swing 15 % in the negative territory for the Pound and 5 % positive depending on the leave or remain vote respectively. This could see lows for GBP/EUR of 1.0880 and highs of 1.3440. Domestic data for the UK and Europe is thin on the ground today, so eyes move to other major locations. US data today and tomorrow likely to hold the headlines, but we do also have Prelim GDP figures from the UK 9:30am.

We expect a range today in the GBP/EUR rate of 1.2690 to 1.2950

Aussie and Kiwi Dollars: The Aussie and Kiwi remain under pressure as the FED decision looms. Risk is off the tables at present and as such this always strikes on the antipodean currencies, with commodities being out of favor. As mentioned earlier in the commentary, early predications point towards a no change in the US interest rates but with a possible hawkish viewpoint to a June rise. If this is the case, we should see the Aussie and Kiwi gain back some ground on the certainty of the release. That is as long as we see no surprises from the New Zealand Trade Balance and Australian consumer price index overnight. As Sterling has seen some confident gains recently, it comes as no surprise that this has seen a reverse in the recent strong movement in the Aussie and Kiwi against the Pound. I would expect some movement on the back of the domestic data in AUS and NZ, but the majority of gains and losses will likely be on the FED announcement. Keep an eye on the Wednesday.

We expect a range today in the GBP/AUD rate of 1.8680 to 1.8870

We expect a range today in the GBP/NZD rate of 2.0960 to 2.1210

Data Releases

AUD: CPI q/q

EUR: No data releases due for today

GBP: MPC member Cunliffe speaks

NZD: Trade balance

USD: Core durable goods orders m/m, consumer confidence

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