The UK gets a new prime minister later today and a strong chance of a cut in interest rates tomorrow. The first factor does not account for all of the recent recovery in the pound, but it has had a bearing in removing the prevailing uncertainty. So the question markets are asking is whether this is a correction in a broader sterling downtrend or sterling can actually start to recover here on a more sustained basis. There is no doubt that cable in particular was looking oversold on the charts in the wake of Brexit. But if we look at the trade-weighted index, the recovery seen is less than 10% of the losses, just to put things into context. More volatility is ahead, given the impending interest rate decision tomorrow from the Bank of England, where at cut in rates in expected, but not fully priced in. This could well keep cable on the defensive over the next 24 hours.
The other main mover overnight has been the yen, which has reversed some of the recent weakening on the back of more speculation of stimulus measures from the BoJ, including talk of helicopter money. It’s not the first time the possibility of the BoJ putting money directly into the bank accounts of consumers, but it is naturally a controversial policy and pretty much untested. Elsewhere, stocks continue their decent run, whilst gold has corrected from the recent highs, to push back below the 1,350 level. Note that the Bank of Canada announced their interest rate decision today, where steady rates widely expected, but statement could cause some volatility if there are more solid hints about the future path of interest rates.