Headlines
Queen’s Speech features EU referendum before 2017 –
Sterling down on possibility of long wait.
GBP/EUR hits 2.5-month high –
Euro recovers on Greek deal optimism.
Pound at 20-day low vs. US Dollar –
On Fed rate hike bets.
GBP/AUD close to 6-yr high –
Risk appetite down on Fed hike speculation.
Sterling
A procession of gilded carriages, royal minders and majestic stallions led Queen Elizabeth II into parliament yesterday so she could announce Prime Minister David Cameron’s new laws of the land. The Queen’s Speech featured measures such as a ban on income tax rises for five years, a freeze on working age benefits, additional free childcare, a cut to the total amount of benefits one household can claim, more devolution for Scotland and an EU referendum by the end of 2017. The PM described the 26-bill package as a ‘programme for working people’ with a ‘one nation approach’ aimed at bringing ‘different parts of our country together’.
Despite the pomp and pageantry, investors were not overly impressed by the Queen’s Speech and Sterling slipped up against the majors as markets came to terms with the prospect of waiting in EU limbo until late 2017.
Euro
Sterling tumbled from a fresh two-and-a-half-month high against the Euro yesterday as traders reacted to comments from Greek PM Alexis Tsipras suggesting that the Hellenic nation is close to clinching a deal with its creditors to secure additional financial aid. Greek 10-year government debt plunged half a percentage point and the Greek stock market jumped 3.4% on the news, despite the fact that officials in Europe appeared slightly less optimistic. One European Commissioner described the noises out of Athens as ‘nonsense’ whilst another philosophised ‘I wish it were true’.
The single currency was also supported by a strangely sanguine German consumer confidence report, which showed that economic sentiment among German citizens is currently at an over 13-year high. Seems that the Greek crisis is being overlooked in favour of optimism deriving from lower consumer prices.
US Dollar
The Pound to US Dollar exchange rate slumped to a 20-day low yesterday as markets continued to take ‘Cable’ lower following its foray into half-year highs earlier in the month. A technical rejection took Sterling lower from 1.57 last week and a, possibly unwarranted, surge in Federal Reserve rate hike bets has kept GBP/USD down so far this week.
However, the Pound could claw back some ground this morning if the Office for National Statistics’ (ONS) latest GDP report shows an upgrade to first quarter economic output. UK growth is tipped to be revised higher from 0.3% to 0.4%, whilst quarterly US GDP could be downgraded from 0.05% to -0.2% on Friday.
The Pound remained close to a new three-month high against the Canadian Dollar yesterday but failed to make any further inroads due to the Bank of Canada’s announcement that rates would remain at 0.75% during May. The BOC maintained that it does not intend to cut rates again this year and forecast a period of sturdy growth in the second half of the year.
Sterling struck a new more-than-five-year high against the Australian Dollar yesterday as global risk sentiment remained weak in the face of a possible bout of monetary tightening in the US later on in the year. However, the potentially destabilising threat of a British exit from the European Union curtailed the Pound’s rallies yesterday afternoon following the Queen’s Speech.
New Zealand Dollar
The New Zealand Dollar rose by around half a cent against the Pound yesterday as Antipodean investors began to speculate that the nation’s largest dairy producing company, Fonterra, would raise its milk price forecast at a meeting later today. Dairy is New Zealand’s most lucrative export and therefore has a strong correlation with the performance of the ‘Kiwi’ Dollar.
Data Released Today
09:30 GBP Gross Domestic Product (QoQ) (1Q P) Medium 0.4%
09:30 GBP Gross Domestic Product (YoY) (1Q P) High 2.5%
13:30 USD Initial Jobless Claims (MAY 23) Medium 270K