FX Currency Market Provide Leading Indicators for Pound Sterling (GBP) Movement

February 4, 2016 - Written by John Cameron

STORY LINK FX Currency Market Provide Leading Indicators for Pound Sterling (GBP) Movement

Currency Market Volatility Yesterday as Global Stock Prices Struggled

The latter part of yesterday’s session brought wild swings for major global markets. At times of extreme volatility, it’s wise to stand back and take a look at the key leading indicators. Our number one analyst weighs up the drivers in the global currency market below…

After hefty losses for Asian equities markets and a red day for London’s benchmark FTSE 100, it was no surprise when North American share markets opened up significantly lower yesterday.

Within the first two hours of trading, New York’s benchmark Dow Jones index had lost the thick end of 300 points as investors shifted en masse out of risk-laden assets.

The extent of the flight to safety was illustrated by a sharp spike in the closely-monitored VIX ‘Fear Index’, which measures the number of protective ‘put’ options placed on deals struck by equities traders in Chicago, jumped to 27.70 – its highest reading since the third week of last month.

Pound Sterling to Australian Dollar saw Best Rate of 2.0565 Yesterday

The febrile mood amongst market participants triggered a move against the Commodity Dollars, with the Pound Sterling (currency : GBP) recording strong gains in early trade against the Australian Dollar (currency : AUD), sending GBP AUD up to as high as 2.0565, while the New Zealand Dollar (currency : NZD) also suffered sustained selling pressure. The upshot saw the GBP NZD exchange rate climb to an intraday peak of 2.2133.

NOK and CAD Strengthen as Oil Prices Gain

Meanwhile, price action for oil has been closely correlated with movement in share markets in recent weeks, but yesterday’s session brought an apparent decoupling of this relationship.

While equities markets got hammered, the price of ‘Black Gold’ jumped, with Brent Crude up by 7.4% on the day. The shift higher for oil helped the Canadian Dollar (currency : CAD) perform with credit against Sterling, while the Norwegian Krone (currency : NOK) also outperformed for the self-same reason.

However, recent positive sessions for oil have invariably been followed by pronounced down days; investors holding NOK or CAD assets will therefore be nervously eyeing oil price movements this morning.

Pound Sterling Soft on ‘Brexit’ Fears

Despite hopes that the prospect of membership reforms would have softened anti-EU sentiment, a new YouGov poll shows that the opposite appears to be true.

Many of the proposed measures, including the watered-down version of the key mechanism to allow David Cameron to suspend benefits to migrants for four years, have been heavily criticised by both sides of the debate.

The latest poll shows a 3% increase in the number of people who intend to vote to leave the EU.

Goldman Sachs has predicted that the Pound could lose a fifth of its value if Britain leaves the EU.

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TAGS: Pound Australian Dollar Forecasts Pound Canadian Dollar Forecasts Po Forecasts