Headlines
UK public borrowing dips in May –
Pound posts strong week vs. majors.
ECB injects liquidity into Greek banks –
Crisis meeting scheduled this evening.
GBP/USD hits new 7-month high –
Fed rate hike bets soften.
GBP/AUD brushing 71-month high –
GBP/NZD trends around 5-year high.
Sterling
Sterling performed well against most of the majors last Friday thanks to some sanguine public sector borrowing data. The latest report showed that government borrowing dropped to its lowest level for seven years during May as income tax receipts bolstered the coffers. At £10.1 billion, net borrowing was down -18.3% over the year, whilst income tax was up +5.3% at £10.8 billion.
The sturdy data helped boost the appeal of the Pound at the end of a very strong week for the UK currency. Last week Sterling appreciated by 170 pips against the Euro, 300 pips against the US Dollar, 320 pips against the Canadian Dollar, 380 pips against the Australian Dollar and 700 pips against the New Zealand Dollar.
Euro
The Pound to Euro exchange rate rose to a new three-week high last Friday but the single currency was spared any steep losses because investors were cheered by the European Central Bank’s decision to inject a further bout of liquidity into Greece’s embattled banking system.
It was reported that Athens submitted a new proposal to its creditors over the weekend but it is unlikely that a deal will be brokered over the next 24 hours. A crisis meeting is due to be held this evening but, given the recent deterioration in relations, leaders do not appear to be getting their hopes up. Indeed, German finance minister Wolfgang Schauble commented ‘We have to wait and see whether something happens…But I’m not sure I’ll be able to announce anything sensational or new’.
Any positive developments could set off a massive surge in demand for the single currency, but another breakdown in communication could drive the Euro even lower against the Pound.
US Dollar
The Pound to US Dollar exchange rate touched a fresh seven-month high on Friday morning as bullish Sterling traders pushed the rejuvenated Pound higher against the ‘Greenback’.
Following the Federal Reserve’s latest statement on interest rates markets remained cautious of putting undue faith in the Fed’s perceived desire to start normalising monetary policy in 2015. Previous remarks from the US central bank had suggested that rates would rise in September of this year but it now looks more likely that policymakers will remain on the sidelines until December. However, cautionary comments regarding the potential impact of a Greek exit on financial markets mean that some investors don’t foresee a Fed rate hike until after the New Year. This subduing of expectations has negatively impacted the US Dollar.
Canadian Dollar
It was reported on Friday that Canadian consumer prices ticked higher from 0.8% to 0.9% in May. However, although the headline CPI inflation index printed slightly higher-than-anticipated the Canadian Dollar weakened due to a disappointing -0.1% monthly contraction in retail sales, which had been expected to rise +0.7%. The commodity-sensitive ‘Loonie’, which declined by half a cent to a near-four-month low, was also impacted by a two-cent plunge in the value of its most lucrative export, crude oil.
Australian Dollar
Sterling appreciated by around 70 pips against the Australian Dollar on Friday as Sterling remained in reach of the 71-month highs struck earlier in the week. Renewed hopes that robust British data could persuade the Bank of England to begin raising UK interest rates sooner-than-anticipated is driving demand for the Pound higher, whilst the ‘Aussie’ is suffering from fears that the Reserve Bank of Australia could decide to cut rates again over the next few months.
New Zealand Dollar
The Pound rose by around 75 pips to a fresh five-year high against the New Zealand Dollar on Friday as markets maintained an acerbic attitude towards the ‘Kiwi’ due to fears that interest rates could rapidly decline in New Zealand over the next few months.
Data Released Today
15:00 EUR Euro-Zone Consumer Confidence (JUN A) Medium -5.5
15:00 USD Existing Home Sales (MoM) (MAY) Medium 3.8%