Headlines
UK CPI on tap –
Inflation tipped to rebound into positive territory.
‘Grexit’ fears weigh on Euro –
EU prepare for ‘State of Emergency’.
‘Cable’ rallies 30 pips –
US industrial production disappoints.
GBP/AUD close to 71-month high –
GBP/NZD close to 4-year high.
Sterling
The Pound remained fairly well-bid against the majors yesterday ahead of this morning’s UK consumer price index report, which is anticipated to show that inflation rose to +0.1% last month. Markets will also be keeping an eye out for the core consumer price index figure, which is tipped to have risen from 0.8% to 1.0% in May.
Price pressures recently moved into disinflationary territory and subsequently many analysts opted to push their Bank of England rate hike bets further into the future. However, if, as some commentators predict, inflation begins to pick-up rapidly in the second half of the year then Sterling could start to strengthen as the prospect of monetary tightening becomes more realistic.
Euro
Relations between Greece and its creditors worsened again at the beginning of the week. Greek social security minister Dimitris Stratoulis accused the institutions of pushing for ‘measures of annihilation’ that would ‘lead to the enslavement of the Greek people’, finance minister Yanis Varoufakis described the breakdown as ‘a moment of clarity’ and urged European leaders to focus on debt relief rather than fiscal targets, whilst Prime Minister Alexis Tsipras stated that he did ‘not have the right to bury European democracy at the place where it was born’.
In contrast, the European Commission said negotiations would not progress unless further pension and tax reforms were proposed, Belgian finance minister Johan Van Overtveldt warned that the Eurozone’s credibility would be compromised if leaders caved in to Greek demands and ruling German conservative politician Volker Kauder bluntly suggested that ‘Greece needs to get back to reality’ with regards to Athens’ demand for debt relief.
All in all the breakdown, which prompted officials at the EU to start preparing for a ‘State of Emergency’ if Greece were to leave the currency bloc, has to be taken as a sign that a Grexit could be imminent. The market reaction to the day’s events was surprisingly muted but we could see GBP/EUR rally if this morning’s UK CPI report comes in positively.
US Dollar
Despite dipping below psychological support during the morning, Sterling managed to register a 30-pip gain against the US Dollar yesterday as markets punished the ‘Greenback’ for another round of dud domestic data.
On this occasion the offender was an underperforming US industrial production report. Traders had been primed for an expansion of +0.2% but the actual result signalled that output actually contracted -0.2% in May. A downgrade from -0.3% to -0.5% to April’s score also weighed on the ‘Greenback’.
GBP/USD could strengthen again today if British inflation rebounds into positive territory, but Sterling’s resurgence could be curtailed on Wednesday evening if markets are impressed by the Federal Reserve’s latest rate hike projections.
Canadian Dollar
A slight downtick in crude oil prices contributed to a mild rise in GBP/CAD yesterday, but the Pound was also boosted by a survey showing that a majority of investors expect UK interest rates to rise during the first quarter of next year. Canadian existing home sales were reported to have accelerated from 2.3% to 3.1% during May yesterday but there was no noticeable uptick in demand for the ‘Loonie’ following the reading.
Australian Dollar
The Pound to Australian Dollar exchange rate lost a little bit of ground during the London session yesterday ahead of the latest minutes report from the Reserve Bank of Australia. The RBA opted to leave rates on hold during June but in the accompanying statement it was made clear that policymakers were open to further reductions in the benchmark rate.
New Zealand Dollar
Sterling remained at elevated levels against the New Zealand Dollar yesterday as traders saw little reason to invest in the downtrodden ‘Kiwi’. The Antipodean currency usually attracts support due to its strong interest rate differential, but following the Reserve Bank of New Zealand’s surprise decision to cut rates last week traders are scratching their heads as to how low the RBNZ intends to take the benchmark rate and this is weighing heavily on sentiment. GBP/NZD is currently trading at its highest level for four years.
Data Released Today
13:15 USD Industrial Production (MAY) Medium 0.2%
13:15 USD Manufacturing (SIC) Production (MAY) Medium 0.3%