Headlines
BoE’s Weale confident on jobs market –
Hints he may vote for a hike soon.
GBP/EUR declines –
Despite IMF rejection of Greek proposal.
Pound loses -50 pips to US Dollar –
US Q1 GDP revised higher.
GBP/AUD close to 7-yr high –
GBP/NZD falls from 5-yr high.
Sterling
Although the Pound didn’t register many gains against the majors yesterday, hopes of a rate hike from the Bank of England were raised by remarks from policymaker Martin Weale. The characteristically eloquent central banker stated that rather than ‘fizzling out, the labour market is…fizzing away nicely’ and hinted that he could be ready to vote for tighter policy as early as this August. Weale mentioned that wages were picking up more quickly than officials had expected and suggested that the impact of last year’s tumble in oil prices on inflation was likely to be reversed over the next few months.
Euro
Sterling weakened by around half a cent against the Euro yesterday afternoon even though Greek debt negotiations took another turn for a worse.
After appearing to make a breakthrough with the EU earlier on in the week, by proposing a new list of reforms that included sharp rises in certain taxes and additional pressure on pensioners’ incomes, the Greek government was shocked to find out that the IMF had rejected their latest proposal.
Greek PM Alexis Tsipras described the IMF’s refusal to accept budgetary improvements from ‘equivalent measures’ – i.e. from plans not specifically prescribed by the institutions but equal in value – as ‘unprecedented’ and suspicious. Tsipras stated that ‘this strange stance may hide two possibilities. Either they don’t want an agreement or they are serving specific interests in Greece’.
It seems very unlikely that Tsipras would be able to push a deal with further austerity through parliament. Indeed, analysts were extremely sceptical as to whether the ruling Syriza party would have ratified the previous deal. And that was before the IMF urged the Hellenic nation to introduce further VAT hikes, make additional cuts to pensions and ease off on corporate tax.
US Dollar
The Pound to US Dollar exchange rate softened by around half a cent yesterday as markets adjusted their GBP/USD positions following a positive upgrade to America’s first quarter growth score.
US Q1 GDP was revised higher from -0.7% to show annualised contraction of -0.2%, which represents quarterly contraction of around -0.5%. Upgraded consumer spending figures and better inventory numbers contributed to the positive revision.
The ‘Greenback’ rallied against the Pound following the print because some speculative investors saw it as further proof that the Federal Reserve will start hiking rates before the Bank of England. Indeed, comments from Fed policymaker Jerome Powell earlier in the week suggesting that rates could be raised twice before the end of the year added weight to this argument.
Canadian Dollar
Sterling rallied by around half a cent against the Canadian Dollar yesterday afternoon. The downtick in demand for the risk-sensitive ‘Loonie’ followed the upgraded US economic growth figures, which suggests that traders were keen to cut their exposure to the Canadian Dollar to hedge against the possibility of higher interest rates in America sooner rather than later. This is because tighter monetary policy in the world’s largest economy would likely lead to a drop-off in demand for risk-correlated assets such as the ‘Loonie’.
Australian Dollar
The IMF made the headlines yesterday for its refusal to accept the latest Greek economic reform proposal, however, the Fund also made its mark in Australia with a set of advisory notes for the government. The IMF warned that growth in the Antipodean economy was likely to slow from 3-4% to around 2.5% over the next few years and suggested that productivity capacity could be improved by spending on public infrastructure projects. Perhaps more pertinently, the Fund commented that the Reserve Bank of Australia should be ready to reduce interest rates further in the future and this reduced the appeal of the ‘Aussie’.
New Zealand Dollar
The Pound was forced to give back some of its recent sensational gains against the New Zealand Dollar yesterday as profit-taking traders took GBP/NZD lower by around -150 pips. Still, Sterling is currently 1,200 pips stronger than it was just a fortnight ago.
Data Released Today
13:30 USD Initial Jobless Claims (JUN 20) Medium 273K
14:45 USD Markit US Services PMI (JUN P) Medium 56.5
23:45 NZD Trade Balance (New Zealand dollars) (MAY) Medium -50M