Referendum rates sterling

Here we go

It is 219 years since the last invasion of Britain. It went on for two days, after which the French attackers surrendered to the Thane of Cawdor. Today, the forces are once again lined up for a fight over Britain's involvement with Europe. This battle will take longer.

The opening shots were fired on Saturday when the prime minister set a date of 23 June for the long- (though not necessarily eagerly-) awaited referendum on membership of the European Union. Investors are far from overjoyed at the prospect.

Their lack of enthusiasm was clear from the way they marked down sterling this morning. It opened in the Far East a cent and a half lower against the US dollar than it had closed in the States on Friday. It is down by an average of -0.5% on the day, -1.8% lower on the week and has fallen by -2.3% compared with a month ago. (In the interests of balance, it should also be noted that the pound is on average virtually unchanged from a year ago.) 

Data disregarded

At the same time investors were marking sterling lower they were also marking up shares, oil and the commodity currencies.  The Australian dollar got the best result, strengthening by two and a half cents from Friday's opening, and the NZ dollar took second place with a two-cent gain. 

The few economic data which came out on Friday had less impact than might have been expected. A strong 2.3% monthly increase in UK retail sales was overshadowed by a smaller-than-expected repayment of public sector debt. US consumer prices were flat in January, doubling the headline rate of inflation to 1.4% but doing nothing for the US dollar. In Canada an acceleration of inflation from 1.6% to 2.0% was offset by a -2.2% monthly slump in retail sales.

This morning Japan kicked off the round of provisional purchasing managers' indices with a slower pace of manufacturing growth, down by two points at 50.3. French manufacturing was steady-ish at 50.3 but services went into reverse, down from 50.3 to 49.8.

More PMIs

There are more provisional PMIs to come from Europe and the United States, though there are none from Britain. The only UK statistic will be the CBI's Industrial Trends survey, which measures manufacturing orders.

All of the remaining provisional PMIs are forecast to be in the growth zone above 50. Analysts are forecasting a tight range of results that covers German and Euroland manufacturing at 52.00 and German services at 54.7.  There are no Far East data scheduled for release overnight.

Sterling's performance today will be shaped by sentiment not statistics. Whilst investors have had months to anticipate the referendum announcement they have not necessarily yet built it fully into the price. More importantly, they have not until now begun to take seriously the possibility that Britain might vote to leave the EU. As with the Scottish referendum, the opinion polls will be important.