Good morning,

GBP – No news, but new blues

There may have been more than a few headlines yesterday charting the fall of sterling but as anyone who has been reading our updates will know, the last thing that we think these declines are is unexpected. Why traders chose yesterday in particular to give the pound a kicking is still very much up in the air but it seems for some who have been betting that the pound will rally back, the time had come to fold their hands and wait for a point to re-enter such a wager.

Stating that the negativity is coming from Brexit fears is not helpful – of course they are. If I had to guess why the negativity has increased in recent days I would say that it is a classic case of a market looking to take on a central bank; the most common conversation I have now about the pound is not about how low can it go (Spoiler: how low can you count?) but more about whether the Bank of England will step in to try and support it and, if they do, what will cause that?

For now, we don’t think that the Bank of England will hike interest rates purely to support the pound but will instead depend on the threat of intervention.

In GBPEUR we are watching the 1.1090 level closely before focusing at a price of 1.08 whilst GBPUSD looks to want to test 1.2775 soon.

Further falls would do two things politically in our eyes. Firstly, increase the chances that the Labour party makes a play to back a second referendum – on the terms of our exit – and secondly, hike the pressure on Theresa May from within her own party.

NZD – Hikes put off for at least a year

The Reserve Bank of New Zealand late last night left its cash rate unchanged at 1.75% as expected. In the accompanying statement, the RBNZ said “we expect to keep the Official Cash Rate at this level through 2019 and into 2020, longer than we projected in our May Statement”. The majority of the negativity has come from weaker growth expectations moving forward and the market is now moving its expectations of a rate hike in New Zealand right until the end of 2019.

The Kiwi dollar did a good impression of a homesick mole overnight and is down 1.2% this morning.

Have a great day.