Brexit Sentiment Dominates Currency Markets

The pound soared on Monday morning as stress was left behind as new polls indicate that the Financial Capital of Europe would remain part of the Eurozone. Sterling added 222 points to trade at the very top of its recent range at 1.4581.  As of late last week The greenback has gained over 10 percent against the pound during the past year, with the British currency most recently quoted at $1.42, down from $1.59 52 weeks ago. Many polls in Britain show a lead for a “yes“ vote, which would have Britain leave the 28-member European Union, and currency markets may have already reacted accordingly. However, market expectations are unanimous that a Brexit would pound the pound down even further, and in short order.

Support for the UK to exit the EU, known as ‘Brexit’, has declined since the murder of British MP Jo Cox, with polls by the Mail on Sunday and Survation both showing the ‘Remain’ camp in the lead. Prior to the pro-Europe Labour MP’s murder, a poll had shown the ‘Leave’ camp was ahead, with the nation set to vote on the matter on Thursday in the UK. Sterling rallied after the polls, with investors wary of an EU exit’s impact on the British economy and financial system.

“It is hard to think the market’s calmer tone to end last week is going to be an ongoing theme this week, particularly as Brexit campaigning and the release of opinion polls has resumed,” ANZ Bank New Zealand economist Philip Borkin said in a note.
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As global stress eased the Japanese yen gave back some of its safe haven moves. The USD/JPY climbed to 43 points to 104.61 even as the greenback tumbled in the morning session The US dollar is down 60 points at 93.70. Against the euro the yen traded at 118.80 climbing 1.33. Japanese trade data for May has missed expectations, led by a steep contraction in the value of exports to China. Recent strength in the Japanese yen, making Japanese goods and services less competitive in offshore markets, along with tepid economic growth in the global economy, likely contributed to the weakness seen in May.

According to the Japanese government, the value of exports fell by 11.3% in the 12 months to May, slightly undershooting forecasts for a smaller contraction of 10.4%.

The annual decline was larger than the 10.1% fall seen in April, and the steepest recorded since January this year.

By destination, exports to China — the nation’s largest trading partner — tumbled by 14.9%, well below the 7.6% decline seen in the year to April.

As a consequence, the value of exports to Asia slid by 13% over the same period, again steeper than the 11.1% contraction recorded previously.

Weakness in the US dollar helped the Aussie and the kiwi trade higher. The AUD is trading at 0.7435 up by 40 points while the NZD gained 58 points to 0.7098. The Australian dollar was the second strongest major currency last week, gaining 0.4% against the greenback. This represents a smart recovery from a low near $0.7285 on June 16, which is almost a cent below the previous week’s close. Resistance is seen in the $0.7440 area and then $0.7500.