FX Roundup: Pound strengthens as IMF intervenes in Brexit debate

The pound sterling rose against a basket of global currencies on Tuesday, after the International Monetary Fund warned a British exit or ‘Brexit’ from the European Union could cause "severe regional and global damage."

In an unexpected intervention, the IMF said Brexit would disrupt long established trading partnerships and cause "major challenges" for both the UK and rest of Europe, with the run up to a referendum already creating uncertainty for investors.

The IMF also cut its UK growth forecast with a revised growth expectation of 1.9% this year, compared with its January estimate of 2.2%. For 2016 it expects 2.2% growth; unrevised from its earlier forecast.

Elsewhere, the UK Consumer Prices Index rose to 0.5% in March, according to the Office for National Statistics. In a scheduled data release, the British statistics body attributed the rise to a sharp increase in air fares, with the earlier timing of Easter being the main reason behind a rise from February's rate of 0.3%.

While inflation is now at its highest level since December 2014, the figure remains well below the Bank of England's 2% target rate.

At 1619 BST, the pound was up 0.18% versus the dollar, changing hands $1.4238, while euro was down 0.15% versus the British currency changing hands at £0.7989. After over a week in negative territory, the dollar finally bounced back against the yen, up 0.60% to change at JPY108.59.

Kit Juckes, head of forex at Societe Generale, said: “A ‘typical' economic cycle reaches a point where higher wage growth, usually followed by higher rates, eats into profits and trips up the cycle. But is that really what's happening in the US, with super-low rates and very low wage growth? Meanwhile, as employment trundles along at 2% per annum and as demand for housing and cars remains solid, the alternative view is that the US economy is that the ‘new normal' cycle with economic growth stuck in second gear, can go on for a fair while yet.

“To my very uneducated eye, a chart of the Vix and the S&P is threatening to turn a corner, and not in a good way. The US Federal Reserve-fuelled equity rally looks, at best, a little tired. I'm not inclined to pre-judge the current earnings season, particularly given gloomy expectations from equity strategists, but I do think it will drive sentiment.”

Elsewhere, commodity-linked currencies had a positive session. The greenback was down 0.77% against the Canadian dollar, changing hands at CAD$1.2799. A plethora of other commodity currencies also rose, particularly in Latin America, with the dollar falling 0.81%, 1.17% and 0.91% versus the Mexican, Chilean and Colombian pesos respectively.

However, the dollar held its own versus the Brazilian Real gaining 1.03% to change at BRL3.5284, as Brazil’s political crisis deepened with a constitutional commission approving moves to impeach President Dilma Rousseff in the wake of the Petrobras corruption scandal.

Finally, the Australian dollar rose 0.87% against the greenback exchanging at US$0.7661, while the New Zealand dollar also rose 0.66% exchanging at US$0.6903.