A growing sense of uneasiness ahead of key risk events has dominated markets today, as the Federal Reserve and Bank of Japan meet this week. However, the biggest event that would likely impact markets the most and one that is causing a lot of risk aversion would be the EU referendum vote in the UK that is due in ten days. The pound has been under pressure lately due to uncertainty over the outcome of the vote. Sterling volatility jumped to record highs due to Brexit concerns.
The pound started the week by setting new lows versus the yen, touching 149.45 yen in today’s European session, the lowest level since August 2013. Against the dollar, sterling fell to a two-month low of $1.4114. EURGBP came close to the key 0.8000 psychological mark, near a two-month high of 0.7985. The pound turned positive and trimmed losses late in the European session as traders awaited the results of the latest ICM Brexit poll today.
Meanwhile, the Bank of England meets on Thursday. It is not expected to move ahead of the referendum but all eyes will be on the Bank’s policy meeting minutes, which are expected to show that the uncertainty surrounding the June 23 referendum has been having a negative impact on the UK currency and economy.
During today’s European session there were no economic releases so the market was driven by sentiment which was predominantly risk-off. Safe havens like the yen and gold benefitted while most other currency pairs were directionless as investors were reluctant to enter new positions ahead of big risk events. The euro traded around $1.1260 for most of the session before jumping higher late in the session.
The yen outperformed, pushing the dollar below 106 yen before it recovered to 106.30 yen by late European session trading.
Risk aversion sustained gold’s rally to a fresh three-week high of $1,287.04. The precious metal is sensitive to interest rates and its price is being supported by the fact that not many are expecting the Federal Reserve to hike rates at this week’s policy meeting.
The Bank of Japan also has a policy meeting scheduled this week. It is probably the only central bank which has a chance to act this month, unlike the Fed and BoE. The continued strengthening of the yen will likely raise expectations that the BoJ may announce some additional stimulus measures, given the weak growth Japan continues to experience and also given the stubbornly low inflation in the economy.
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