Headlines
Pound Sterling riding on Wednesday’s glory –
BoE hike unlikely anytime soon.
Greece & IMF talks breakdown –
Euro falls -100 pips.
US retail sales up 1.2% –
GBP/USD remains flat.
GBP/NZD continues to slide –
‘Kiwi’ 6 cents down since rate cut.
Sterling
Sterling remained in good stead versus most of the majors yesterday following Wednesday’s decent domestic data stream, which saw the NIESR raise its growth estimate for the last three months from 0.4% to 0.6% and saw industrial production increase from 0.1% to 0.4% in April.
However, demand for the Pound did not flare-up as much as it could have done because markets were disappointed with Governor Mark Carney’s lack of interest rate hints during his Mansion House speech. A year ago the Governor sent Sterling surging by remarking that markets were underestimating the chances of a rate hike, but having decided against tightening monetary policy in the intervening 12 months Carney also opted against discussing rate prospects this time out. This was seen as a sign that rates are likely to remain flat for a long time yet.
Euro
The Pound to Euro exchange rate strengthened by around a cent yesterday as talks between Greece and its creditors stalled once again.
Markets were particularly worried by news that the IMF had sent its negotiating team home, due to ‘major differences’ between the Fund and Greece on key issues such as pension reform and taxation. And traders were also disheartened, earlier on in the day, by remarks from European Council President Donald Tusk suggesting that there was no more time for negotiation. He said: ‘The day is coming, I’m afraid, that someone says that the game is over’.
Greece, for its part, appeared unwilling to budge, with finance minister Yanis Varoufakis stating that he would not, ‘under any circumstances’ agree to a 1% budget surplus target for 2015. Another sign that the impasse could prove impossible to break.
US Dollar
Sterling grappled with psychological resistance against the US Dollar yesterday as a robust US retail sales report prevented the ‘Greenback’ from suffering any significant losses against the Pound.
It was reported that retail spending increased 1.2% in May as consumers purchased new cars at a fairly rapid rate even though fuel prices started to inch higher. Consumer spending is a major part of the US economy and the upbeat report suggests that second quarter GDP is likely to rebound from the near -0.2% quarterly contraction in Q1.
A separate report showed that the number of people filing for new benefit claims inched higher from 275,000 to 279,000 last week. But this minor irritation was largely ignored due to a sprightly 0.4% increase in business inventories, which beat the market consensus of 0.2%.
Canadian Dollar
Sterling appreciated by over half a cent against the Canadian Dollar yesterday to strike a six-day high as crude oil prices dropped, which hurt demand for the commodity-correlated ‘Loonie’.
The Canadian Dollar had earlier drawn support from a slightly better-than-anticipated Chinese industrial production reading of 6.1%, which had raised hopes that an increased demand for raw materials in China could boost the ‘Loonie’.
Australian Dollar
The ‘Aussie’ got off to a strong start yesterday, rallying over 150 pips as upbeat labour market data boosted the Antipodean currency’s appeal. Reserve Bank of Australia rate cut bets deteriorated when unemployment beat expectations of 6.2% by printing at 6.0% thanks to a bumper 42,000 increase in new jobs. However, demand for the Australian Dollar tailed off during the day and GBP/AUD returned to pre-labour market levels during the London session.
New Zealand Dollar
The New Zealand Dollar continued to decline yesterday following the Reserve Bank of New Zealand’s shock decision on Wednesday evening to cut rates for the first time in four years. Coincidentally (or not) GBP/NZD is now trading at a four-year high and the Pound is around six cents stronger than it was immediately preceding the RBNZ announcement. And things don’t look great for the ‘Kiwi’ going forward because policymakers appear keen to cut rates again in the future.
Data Released Today
09:30 GBP Construction Output s.a. (YoY) (APR) Medium 0.5%
10:00 EUR Euro-Zone Industrial Production w.d.a. (YoY) (APR) Medium 1.1%
15:00 USD U. of Michigan Confidence (JUN P) High 91.4