FX round-up: Cable higher but traders take note of Brexit risks
Sterling ended the session sharply higher following the Conservatives’ surprise election win, but traders quickly moved to price in the risk of a referendum on Britain’s continued membership of the European Union.
The pound close at 1.5457.
US non-farm payrolls increased by 223,000 in April, slightly ahead of the 220,000 print expected by analysts. However, the tallies for the previous two months were revised lower by a combined 39,000. The rate of growth in average hourly earnings missed forecasts, coming at 2.1% year-on-year, a tad below the 2.2% rise which had been expected.
For economists at Unicredit the US employment report was just strong enough to keep the possibility of a September Fed rate hike on the table.
“We continue to see the trade-weighted US dollar index as trading around 7% higher than can be justified by real rate differentials, therefore, we see room for further downside on a medium-term basis,” Unicredit’s Economics and fixed income and currencies team said in a research note e-mailed to clients.
However, by Monday morning the October Fed funds futures contract was pricing in only a 44% probability of a Fed rate hike by September.
Euro/dollar slipped -0.39% to 1.1208.
The situation in Greece continued to weigh on sentiment, with the ECB’s Nowotny having reportedly said that controls on capital could be beneficial as a temporary solution.
On a more positive note, Italian industrial production jumped in March by 1.5% year-on-year (consensus: -0.2%).
Further afield, the Governor of the Swiss National Bank said the country’s currency is overvalued.
Dollar/yen ended the day flat at 119.72.