Yesterday was all about sterling, with the biggest one day move on cable since March 2009, with the GBP USD exchange rate also reaching levels last seen during that time. The options market was also very volatile, with implied volatilities on cable seeing the largest one day jump for 10 months as the market took on board the likelihood of a volatile few months ahead as the UK gears up for a referendum on EU membership that remains too close to call. It’s likely that the Brexit debate will remain an ongoing theme for sterling this week. Note that BoE Governor Carney speak in front of the UK Treasury committee in Parliament today, which could well see him pushed on the Brexit issue by members. With expectations for any change in policy over the coming months barely noticeable, then it’s unlikely we’re going to see much volatility on the back of this appearance though.
In overnight development’s, we’ve seen the yuan fixing weaker, which has enticed some safe haven flows into the yen and pushed USDJPY below the 112.00 level. We also heard overnight comments from BoJ Governor Kuroda express some doubts on the ability of monetary policy to achieve his elusive inflation goal. This comes ahead of the G20 meeting later this week, where no doubt more stories of currency wars will emerge in the headlines, but the G20 themselves will probably steer well clear of the issue, at least in public. For today, the single currency will be watching the German IFO data at 09:00 GMT, where the headline rate is seen moderating to 106.8 (from 107.3). The euro was weaker yesterday on the back of the softer preliminary PMI data seen in the Eurozone, with the 1.1003/1.0985 area set as key level of support for the coming days.