Headlines
BoE holds rates at 0.50% –
Markets unresponsive.
GBP/EUR rebounds slightly –
Greek impasse continues.
Pound flat vs. US Dollar –
US non-farm payroll report on tap.
Sterling up 3 cents vs. ‘Aussie’–
Australian trade deficit hits all-time high.
Sterling
The Bank of England stuck to its guns yesterday and left interest rates on hold at rock-bottom rates for the 75th month in a row. Nobody expected the bank to raise rates this month and subsequently the market reaction to the central bank announcement was muted. Dark mutterings suggest that some policymakers may be starting to envision higher rates but the majority of the nine-person Monetary Policy Committee (MPC) look likely to vote against a rate hike over the next 12 months.
Last week British first quarter growth disappointed at 0.3% and this week saw the highly important UK service sector slow at its fastest rate for six years. These are not the type of figures that are required to persuade MPC members to change tack and risk strangling the recovery with higher borrowing costs.
Euro
The Pound rebounded slightly against the Euro yesterday after a week which saw GBP/EUR decline by around five cents.
Markets were buoyed by speculation that the IMF was willing to allow Greece until the end of the month to make a debt repayment which was originally due today. Theoretically, this should give the Hellenic nation enough time to agree a deal with its creditors to secure additional financial aid. The latest development is that rather than accept Syriza’s reform proposal, the institutions formerly known as the ‘Troika’ have written their own list of economic reforms. Predictably, because the creditors’ list included pension and labour market reform, which Syriza consider red lines that cannot be crossed, the Greek government refused to accept the package. The impasse continues.
US Dollar
The Pound to US Dollar exchange rate rallied 100 pips yesterday morning, however, a technical rejection took Sterling lower during the afternoon.
The BoE interest rate decision really didn’t have any impact on ‘Cable’ but US traders were positively influenced by a report showing that initial jobless claims fell -8,000 to 276,000 last week in America.
The key event on today’s schedule is the US non-farm payroll report, which is tipped to show sturdy employment growth of 227,000 in May. A number in this region would likely support the ‘Greenback’ as it would leave the door open to an anticipated Federal Reserve interest rate hike in December. Anything below 200,000 could spell trouble for the US Dollar but anything above 275,000 could lead to large gains for the world’s premier reserve currency.
Canadian Dollar
Sterling surged to a fresh three-month high against the Canadian Dollar yesterday as market sentiment continued to reflect negatively on the ‘Loonie’. Crude oil futures declined yesterday and this contributed to the Pound’s 70-pip gain but it also appears that some traders were positioning themselves ahead of this afternoon’s Canadian labour market report. Unemployment is expected to remain at 6.8% but if the rate were to rise the ‘Loonie’ could weaken on interest rate cut bets.
Australian Dollar
The Pound to Australian Dollar exchange rate appreciated by more than three cents yesterday as traders reacted surprisingly sharply to a duo of downbeat domestic ecostats.
Data showed that compared to forecasts of 0.3% growth, retail sales stagnated during April. And matters were made worse by a separate report showing that the nation’s budget deficit swelled to –AU$3.9 billion in April. The disappointing trade balance report was particularly galling for holders of the ‘Aussie’ Dollar because it was the worst result on record.
New Zealand Dollar
The Pound remained close to four-year highs against the New Zealand Dollar yesterday, rallying by around 150 pips, as falling commodity prices took profitability in the New Zealand export sector down to a two-year low.
Data Released Today
09:30 GBP BoE/GfK Inflation Next 12 Mths (MAY)
10:00 EUR Euro-Zone Gross Domestic Product s.a. (QoQ) (1Q P)
13:30 CAD Net Change in Employment (MAY)
13:30 CAD Unemployment Rate (MAY)
13:30 USD Change in Non-farm Payrolls (MAY)
13:30 USD Unemployment Rate (MAY)
13:30 USD Average Hourly Earnings (YoY) (MAY)