After stabilizing over the past week, the pound saw renewed volatility today as it tumbled to fresh 31-year lows against the US dollar. Sterling had come under pressure earlier in the day when British bank, Standard Chartered, triggered fears of investors fleeing UK assets after it said that it had suspended trading in its UK real estate fund due to large withdrawals.
Fresh measures by the Bank of England to ease liquidity concerns in the British economy failed to support the pound as the Bank’s Governor, Mark Carney, said that sterling’s fall “should be beneficial for the current account”. Carney spoke about the economic adjustments that will be required in the economy following the decision to leave the EU but said the pound has moved in the direction necessary to facilitate these adjustments.
The Governor made his comments when presenting the Bank’s latest financial stability report where he announced a relaxation of the counter-cyclical capital buffer for UK banks, which in effect frees up to £150 billion for lending to individuals and businesses.
The pound broke below 1.31 dollars for the first time since September 1985 to hit a low of 1.3042 dollars in afternoon European trading. It also fell to fresh multi-year lows against the euro and the yen. The euro rose to a 2½-year high of 0.8547 pounds, while against the yen, sterling dipped to a 3½-year low of 132.42.
UK services PMI provided only a brief relief to the pound as it wasn’t as terrible as many had feared after yesterday’s dismal construction PMI. The services PMI fell to 52.3 in June from 53.5 in May. The reading was below expectations of 52.7 but was still in positive territory, unlike the construction PMI.
The euro also failed to get much of a lift from upward revisions to the Eurozone services and composite PMIs for June. The final reading of the services PMI was revised up from 52.4 to 52.8 in June, while the composite PMI was revised from 52.8 to 53.1.
In other data for the Eurozone, retail sales for the region matched expectations in May. Month-on-month retail sales rose by 0.4% in May and was higher than the previous month’s upwardly revised 0.2% rate.
The single currency was weaker against the dollar for much of the day and was struggling to hold on to the 1.11 level, trading just above it in late European session.
The US dollar was back under pressure against the yen on Tuesday as it slipped below the 102 yen level for the first time in a week. It hit a low of 101.44 yen after the latest durable goods orders data disappointed. Durable goods orders narrowly missed estimates of a 2.2% drop to decline by 2.3% month-on-month in May. The fall was less prominent in the core rate, which excludes defence and aircraft orders. Core durable goods fell by 0.4%, an improvement on the previous month’s -0.7% rate.
Commodity currencies headed lower in line with commodity prices, which fell back on profit taking and increased risk aversion on Tuesday. Crude oil led the declines, slumping by around 4% in late European session. US oil futures were last down at $ 46.77 a barrel. The Australian, New Zealand and Canadian dollars were down between 0.8% – 1.0% in late European session.
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