Headlines
UK trade deficit shrinks –
HSBC to cut 8,000 British jobs.
UK industrial production on tap –
0.1% MoM expansion predicted.
Eurozone Q1 GDP prints at 0.4% –
New Greek proposal dismissed.
RBNZ interest rate decision on tap –
‘Kiwi’ could rebound if rates held.
Sterling
The Office for National Statistics (ONS) reported yesterday that the UK trade balance improved in April, giving hope that economic growth will not be constrained by trade in the second quarter to the extent that it was in Q1. The visible trade deficit narrowed from -£10.7 billion to -£8.6 billion as a 23% jump in exports to the US boosted the figures. Net trade knocked around -0.9% off UK GDP in Q1, bringing economic output down to a two-year low of 0.3%, but analysts believe the improvement in April could set Britain up for a solid start to the second quarter.
Surprisingly, the Pound did not appreciate following the upbeat trade balance report. This may be because British bank HSBC announced that it is cutting 8,000 British jobs in a bid to reduce running costs and become more competitive.
Holders of Sterling will be hoping for a sturdy score of 0.3% or higher in this morning’s UK industrial production report, but analysts predict that output shrunk from 0.5% to 0.1% during April.
Euro
Sterling rallied by around a third of a cent against the Euro yesterday as investors reacted to Greece’s latest economic reform proposal.
It was reported that Athens submitted a fresh proposal to its creditors in attempt to secure financial assistance and it is believed that the report featured three new pages of reforms, including a compromise in budget surplus targets. But officials from the European Union remarked that ‘what has been submitted is not sufficient to move the process forward’. This setback halted the single currency yesterday but markets were cheered by comments from European Commission Vice-President Valdis Dombrovskis intimating that an agreement could be reached over the next few days.
Economic data confirmed that, as expected, the currency bloc expanded by 0.4% in the first three months of the year. This means that the Eurozone outgrew both Britain (0.3%) and the United States (around -0.2%) in Q1 and suggests that the European Central Bank’s expansive bond-buying scheme is having the desired effect on economic sentiment in the region.
US Dollar
The Pound to US Dollar exchange rate dipped and recovered by around 100 pips yesterday. It seems that traders were initially worried by the announcement from HSBC that it will be slashing thousands of jobs in the UK but that the morning’s decline triggered a rebound after bouncing from a technical support level. Some traders also mentioned that demand for Sterling was supported by comments from UK Foreign Secretary Philip Hammond confirming that Britain would never enter the single currency under a Conservative government.
The immediate future of ‘Cable’ rests in the hands of rate hike bets and currently the market expects the Federal Reserve to raise borrowing costs around six months earlier than the Bank of England, which could make it difficult for the Pound to make any significant gains over the next few weeks.
Canadian Dollar
A US$2 rise in the value of a barrel of crude oil helped bolster support for the commodity-correlated ‘Loonie’ yesterday. With little other Canadian ecostats to contend with, traders took the Canadian Dollar higher by around a cent against Sterling yesterday and GBP/CAD succumbed to its lowest level in 20 days. Demand for the ‘Loonie’ blossomed following last Friday’s sanguine Canadian labour market report and GBP/CAD is currently over 250 pips stronger than it was prior to the data.
Australian Dollar
A mixture of soft Chinese inflation data and upbeat UK trade figures ensured that the Pound to Australian Dollar exchange rate remained close to six-year highs yesterday. The ‘Aussie’ had drawn support from comments from US President Barack Obama suggesting that institutions need to support growth, rather than tighten policy, at this moment in time but the high-beta currency was unable to hold onto its gains following a report showing that Chinese inflation slowed from 1.5% to 1.2% during May, thus boding badly for economic activity in the Asia-Pacific region.
New Zealand Dollar
GBP/NZD plunged yesterday morning but recovered all of its losses by the end of the day as hopes of sturdy British growth in Q2, in light of the upbeat trade balance report, outweighed fears related to HSBC’s decision to cut 8,000 British jobs. It is possible that the Pound could appreciate in the build-up to the Reserve Bank of New Zealand’s rate decision this evening, but that the ‘Kiwi’ could recover afterwards – so long as no monetary easing is announced.
Data Released Today
09:30 GBP Industrial Production (MoM) (APR) Low 0.1%
09:30 GBP Industrial Production (YoY) (APR) Medium 0.6%
15:00 GBP NIESR Gross Domestic Product Estimate (MAY) Medium 0.4%
19:00 USD Monthly Budget Statement (MAY) Medium -$97.5B
22:00 NZD Reserve Bank of New Zealand Rate Decision (JUN 11) High 3.50%