Headlines
Cameron speaks in Brussels –
Remains vague on EU referendum demands.
GBP/EUR ticks higher –
Still no Greek deal.
Pound rallies vs. US Dollar –
US service sector growth slows.
GBP/AUD close to 7-yr high –
GBP/NZD falls from 5-yr high.
Sterling
With little significant economic data to digest traders refrained from sending Sterling significantly higher against the majors yesterday. Markets were interested in Prime Minister David Cameron’s speech at the EU summit in Brussels but the PM’s vagueness, with regards to what he wants to stay in the union, meant that most market players were not minded to adjust their Sterling positions too much following the speech. Most analysts are confident that Britons will vote to remain in the EU but it is anticipated that economic uncertainty in the run-up to the referendum could weigh on demand for the Pound.
Euro
Little progress was made in Greek debt talks yesterday – shock horror! – and subsequently the Pound drifted higher by around a quarter of a cent against the Euro.
The latest Eurogroup meeting of finance ministers saw Greek officials argue with European leaders over how the Hellenic nation should attempt to improve its public finances. Athens vowed to stick to its proposal to increase tax and social contributions, whilst the creditors argued that further reductions in spending were necessary. As some policymakers commented, the negotiations appeared to have ‘gone backwards’.
Earlier in the week it was remarked that the debt talks had entered the ‘final five minutes’, with reference to the idea that the ‘eleventh hour’ had already passed. And the latest failed attempt to broker a deal suggests that the talks are going to go all the way to the final five seconds. It’s a risky game that both sides of the argument are playing but, miraculously, the single currency has not suffered any steep losses so far this week. However, there is potential for the Euro to tumble if the clock strikes a metaphorical midnight and a Greek deal has not yet been reached.
US Dollar
The Pound rallied by around a third of a cent against the US Dollar yesterday afternoon in reaction to a worse-than-expected US services PMI print, which was actually the biggest miss on record. Compared to calls for 56.5, the tertiary sector index came in at 54.8 in a sign that economic activity most likely slowed towards the end of the second quarter. Markit Economist Chris Williams suggested that the softer trend of recent data prints ‘may mean the Fed takes a further pause for thought before hiking interest rates’.
The majority of market players anticipate a rate hike from the Federal Reserve in December of 2015 but there is an argument for the US central bank to wait until the New Year. This would bring the Fed’s hiking outlook inline with the Bank of England’s and could subsequently lead to a surge in demand for the Pound.
Canadian Dollar
The Sterling to Canadian Dollar exchange rate fluctuated yesterday but in the absence of any new economic reports related to either currency’s economy, the pair ultimately closed for the day very close to opening levels. Crude oil, the most important element of Canada’s lucrative export industry, declined in value slightly but it was not enough to warrant a significant period of selling pressure on the ‘Loonie’.
Australian Dollar
GBP/AUD traded with volatility yesterday as unsuccessful Greek debt talks dominated investors’ minds but gave them little clear direction to base their trades. Technical trading patterns suggest that the Pound is in the middle of a powerful uptrend against the Australian Dollar at the moment and this suggests that Sterling could potentially strengthen by a further seven cents over the next few weeks and months. The Pound to Australian Dollar exchange rate is currently trading close to its highest level since July 2009.
New Zealand Dollar
The Pound softened slightly against the New Zealand Dollar again yesterday as scalpers continued to lock-in profit from the recent meteoric rise in GBP/NZD. However Sterling is still sitting at a very high level – close to its highest in five years – against the ‘Kiwi’ Dollar and could push further ahead over the next few months as Reserve Bank of New Zealand rate cut bets erode demand for the Antipodean currency.
Data Released Today
15:00 USD U. of Michigan Confidence (JUN F) Medium 94.6