Headlines
No significant UK data releases –
Quiet week ahead.
– Analysts query economic consequences of new Greek deal.
Pound loses cent to US Dollar –
Fed policymaker suggests 2 hikes in 2015.
GBP/AUD close to 7-yr high –
GBP/NZD hits new 5-yr high.
Sterling
It was another quiet day on the British economic calendar yesterday. The only data release of minor significance was a report from the Confederation of British Industry (CBI) showing that UK factory orders slowed to a near-two-year low at the beginning of June. The CBI’s manufacturing index shrunk from -5 to -7 as export demand was offset by the strong Sterling exchange rate and the ongoing crisis in Greece.
This morning will see the British Banking Association release its latest mortgage approval report but the Pound is not expected to experience significant volatility following the data print.
Euro
Despite the recent developments in Greece, which could have paved the way for a new aid deal by the end of the week, the Pound rallied to its strongest level in four weeks against the Euro yesterday.
Comments from European officials suggest that Greece’s creditors are happy with Athens’ latest proposal, which includes a hefty 10% rise in restaurant tax, a rise in pension contributions and higher corporation tax, among other things. This sent the single currency surging earlier in the week. However, analysts have since suggested that the new austerity measures could reduce Greek economic output by -3% and there has also been an outcry from within the radical left-wing Syriza party. Many members of the Greek government, and indeed many financial analysts, believe that the latest proposal will merely prolong the cycle of economic contraction. Subsequently demand for the Euro has softened.
The only silver lining is the suggestion that the European Commission is working on a new stimulus scheme that could present Greece with around €35 billion in financial assistance. Jean-Claude Juncker hinted that the funds could only be released if the institutions reach an agreement with the Hellenic government regarding economic reform.
US Dollar
‘Cable’ softened by around a cent yesterday even though economic data printed disappointingly. US Durable goods orders printed poorly at -1.8%, confounding expectations for a -1.0% decline and marking a deceleration from the previous month’s downwardly revised -1.5%. On top of that Markit’s latest gauge of manufacturing activity showed that output slowed from 54.0 to 53.4 at the start of this month.
However, the ‘Greenback’ was able to shrug off the soft domestic data set and push ahead against the Pound on the back of hawkish comments from Federal Reserve policymaker Jerome Powell. The Fed official gave the US Dollar a massive boost by commenting on the possibility that interest rates could be hiked by a percentage point this year, suggesting that we could see two pieces of monetary tightening before the year is out. Powell cited sturdy growth, rising wages and improvements in labour participation as reasons to be optimistic about the world’s largest economy.
Canadian Dollar
Sterling lost out on around a cent against the Canadian Dollar yesterday afternoon as Canada’s most lucrative export, crude oil, rallied US$1.50 per barrel. Prices paid for the ‘black gold’ appeared to spike on rumours that new US regulations will force crude oil inventories to be reduced by two million barrels in the United States.
Australian Dollar
In the absence of any major data releases related to either currency the Pound to Australian Dollar exchange rate fell subject to selling pressures yesterday. The uptick in crude oil prices contributed to the commodity-sensitive ‘Aussie’ Dollar’s gains as investors looked to lock-in profit from the near seven-year high GBP/AUD rate.
New Zealand Dollar
Sterling struck a fresh five-year high against the New Zealand Dollar yesterday evening before falling folly to profit-taking stances during the afternoon as rising commodity prices boosted the appeal of the commodity-correlated ‘Kiwi’.
Data Released Today
09:30 GBP BBA Loans for House Purchase (MAY) Medium 43350
13:30 USD Gross Domestic Product (Annualized) (1Q T) Medium -0.2%