It has been a “risk-on” day for currencies, with the Dollar, Euro and Sterling losing ground against high-yielding emerging market currencies (including the South African Rand and Brazilian Real) and against the more-risk sensitive developed-market currencies such as the Australian Dollar. Sterling has failed to rebound since yesterday’s post Bank of England meeting sell-off, with markets seemingly unimpressed by the fall in the UK services PMI to 53.5 in July from 55.1 in June. The service sector accounts for about three-quarters of UK GDP.
The Bank of England, Federal Reserve and Bank of Japan all held policy meetings this week and the bottom line is that it will take more than central bank rhetoric (or even a 25bp hike in the case of the UK) to really move major currencies. Brexit is the obvious Sterling market-shaker in the next few months.
