Headlines
Pound up on sturdy industrial report –
Production rises 0.4% in April.
Sterling skyrockets 400 pips vs. ‘Kiwi’ –
RBNZ cuts rates -25bps.
NIESR says GDP up 0.6% –
Growth accelerates in 3 months to May.
GBP/AUD hits 71-month high –
RBA comments lead to volatility.
Sterling
The Pound rallied against some of the majors yesterday morning in reaction to an upbeat UK industrial production report. Markets were impressed by the 0.4% monthly expansion in industrial output, which massively outshone expectations of a mere 0.1% gain. The extraction element of the report provided the biggest boost, with a 5.6% improvement witnessed in the mining and quarrying sector. Manufacturing fared less well, with a disappointing -0.4% contraction. Overall the report was seen to bode well for second quarter growth and it is now anticipated that industrial output will increase by 0.8% in Q2, compared to just 0.1% in Q1.
Sterling also benefitted from an estimate from the National Institute of Economic and Social Research (NIESR) suggesting that the British economy accelerated from 0.5% to 0.6% between April and May.
Euro
Sterling appreciated by over 100 pips against the Euro yesterday morning thanks to the strong British industrial production numbers and the upbeat NIESR GDP estimate.
Across the Channel in the Eurozone, markets continued to focus on the Greek debt impasse. Hopes of a deal looked rather slim in the morning, with Greece claiming that it had not received any feedback from its creditors regarding its latest reform proposals. It later emerged that European Union officials were not happy with the proposal and felt that more concessions were needed to clinch further financial assistance.
Things did brighten up during the afternoon when a rumour did the rounds that Germany was ready to broker a staggered aid deal. This would allow for the release of some funds immediately – necessary for the Hellenic nation to avoid defaulting on upcoming loan repayments – and would give Athens more time to come up with further ‘credible’ reform plans. GBP/EUR dipped -40 pips in reaction to the rumour.
US Dollar
The Pound to US Dollar exchange rate struck a 20-day high yesterday, rallying by around 100 pips, as positive domestic data boosted the appeal of the Pound.
‘Cable’ failed to stabilise above a key psychological resistance level, but still managed to hold onto the majority of its daily gains, suggesting that traders are beginning to loosen their grip on Bank of England rate hike expectations, which had been firmly focussed on the mid-point of 2016.
However, the ‘Greenback’ could attract buyers this afternoon if May’s US advanced retail sales report prints at 1.2% as expected.
Canadian Dollar
Sterling appreciated minimally against the Canadian Dollar yesterday as upbeat UK industrial production numbers and a decent May GDP estimate increased the appeal of the UK tender. However, the ‘Loonie’ proved no push-over as crude oil prices ticked higher for the second day in a row, which helped keep the commodity-correlated Canadian Dollar buoyant.
Australian Dollar
The Australian Dollar sunk to its lowest level for 71-months against the Pound yesterday. The ‘Aussie’ was subject to intense volatility as Reserve Bank of Australia Governor Glenn Stevens discussed the possibility of cutting interest rates further.
Stevens started with comments suggesting that he was open to loosening monetary policy further, which sent GBP/AUD soaring. However, he finished with reservations about how much another rate cut could actually help the Australian economy, which sparked a rebound in demand for the ‘Aussie’.
New Zealand Dollar
Demand for the high-beta ‘Kiwi’ Dollar plummeted following the Reserve Bank of New Zealand’s decision last night to cut interest rates by -25 basis points to 3.25%. This led to an absolutely massive 400 pip gain for the Pound against the New Zealand Dollar as traders, caught off-guard by the surprise decision, endeavoured to cut their exposure to the tumbling ‘Kiwi’. GBP/NZD hit a new four-year high.
The outrageous depreciation of the New Zealand Dollar was accentuated by remarks from the RBNZ suggesting that further rate reductions were possible.
Data Released Today
13:30 USD Advance Retail Sales (MAY) High 1.2%
13:30 USD Initial Jobless Claims (JUN 6) Medium 277K
15:00 USD Business Inventories (APR) Medium 0.2%