Headlines
PM Cameron aims to reform EU –
Says can’t rule out ‘Brexit’ if no concessions made.
GBP/EUR close to 2-month high –
No ‘quick and dirty’ Greek fix.
Pound down -200 pips vs. US Dollar –
Fed Chair says rates should rise in 2015.
GBP/NZD falls from 4-yr high –
GBP/CAD Softer as Canadian retail sales impress.
Sterling
The Pound softened a little bit against some of the majors on Friday as traders turned their attention to British Prime Minister David Cameron’s drive to hold an in/out EU referendum.
At a European Union meeting in Riga intended to discuss the possibility of strengthening ties with former Soviet states, the PM opted to focus on his desire to reform Britain’s deal with the EU. French President Francois Hollande remarked that the ‘Brexit’ agenda was not discussed at the summit but, although slightly off-topic, Mr Cameron was given some time to voice his opinions to the press.
Essentially, the PM argued that Britain, the continent’s biggest military force and one of the world’s largest economies, should be given more control over issues such as migration and welfare. Markets were slightly shaken by Mr Cameron’s assertion that he ‘couldn’t rule out’ campaigning for a British exit if he was not given the concessions that he desires.
Euro
Sterling held close to a two-month high against the Euro on Friday as a gauge of German business confidence slowed slightly and talk of an imminent Greek debt deal cooled.
It was also reported on Friday that the IFO’s latest business climate index slowed from 108.6 to 108.5 in May as problems on the continent – GREECE – impacted sentiment in the currency bloc’s largest economy. A separate report showed that German GDP increased at a year-on-year rate of just 1.0% in the first quarter.
But the main issue weighing on demand for the single currency was, as it usually is, related Greece. Investors were discouraged by comments from IMF Chief Christine Lagarde indicating that the Hellenic nation’s creditors would require a ‘comprehensive’ reform package rather than a ‘quick and dirty job’.
US Dollar
Technical trading patterns helped bring the Pound to US Dollar exchange rate lower by around -200 pips on Friday as Federal Reserve Chairwoman Janet Yellen reaffirmed her desire to raise interest rates before the end of the year.
The ‘Greenback’ had struggled at the beginning of the week due to speculation that the recent bout of disappointing US ecostats could persuade the Fed to wait on the sidelines until 2016. However, these fears were put on hold, for now at least, following Ms. Yellen’s confirmation that rates are on track to rise later this year. Markets currently see a 61% chance that the Fed will hike rates in December.
In terms of economic data, the US inflation rate tumbled to -0.2% but the Dollar managed to avoid any fresh selling pressures because a) the score was anticipated beforehand, and b) the core CPI report showed underlying price pressures of +1.8%.
Canadian Dollar
Despite a worse-than-expected domestic inflation report, the Canadian Dollar rallied by around 70 pips versus the Pound on Friday as retail sales impressed at 0.7%.
Investors were concerned by a sharp dip in Canadian consumer prices, from 1.2% to 0.8% compared to forecasts of 1.0%, but because the drop in prices allowed for a bumper month of consumer spending the ‘Loonie’ was not subject to selling pressures on Friday afternoon. The recent run of largely positive data has caused markets to revaluate the resilience of the Canadian economy in the face of plunging oil prices; it is now getting easier for analysts to agree with Bank of Canada Governor Stephen Poloz that interest rates may not need slashing again at this juncture.
Sterling remained below six-year highs against the Australian Dollar on Friday as Britain’s fractious relationship with the European Union limited the appeal of the world’s oldest currency. Traders digested news out of the United States and decided against pushing Fed rate hike bets into 2016 and this prevented the ‘Aussie’ from mounting a rebound against the Pound.
New Zealand Dollar
GBP/NZD softened by around a third of a cent against the New Zealand Dollar on Friday as investors locked in profit from Thursday’s four-year high Sterling / ‘Kiwi’ rate.
Data Released Today
23:45 NZD Trade Balance (New Zealand dollars) (APR)