Headlines
Pound steady after dry week
– No significant UK data until Wed.
GBP/EUR ticks higher
– Greece imposes capital controls, emergency Bank Holiday.
Athens to hold referendum on austerity
– Greece to default on Tues.
GBP/AUD at new 7-yr high
– GBP/NZD close to 5-yr high.
Sterling
Sterling capped a fairly uneventful week with another lacklustre performance against the majors on Friday. It’s not that the Pound is trading at low levels – to the contrary: it currently stands close to multi-year highs against the Antipodeans and a near-seven-month high against the US Dollar – it’s just that with no fresh domestic data to contend with Sterling found itself rallying and declining last week in reaction to events taking place on foreign soils.
It could be a rather slow start to the week again this time out, with little data of import until Wednesday when Markit Economics releases the manufacturing PMI for June. Construction on Thursday and, most importantly, services on Friday should give hungry Sterling traders something to get their teeth into.
Euro
The Euro is currently trading close to a monthly low against the Pound. The single currency declined when markets reopened this week as investors reacted to news that Greece had called an emergency Bank Holiday.
The Greek government announced last night that banks would remain closed today and also stated that capital controls will be imposed shortly. It is believed that ATMs will reopen on Tuesday with a daily withdrawal limit of €60, however, some sources suggest the limit could be as high as €200. Greek PM Alexis Tsipras blamed the European Central Bank for not raising Greece’s emergency liquidity assistance programme and for rejecting his request for a short-term bailout extension to allow for a referendum on whether to accept the latest dose of austerity.
Greece will now hold a referendum on Sunday to let its citizens decide whether the Hellenic nation should accept the institutions’ new reform plans or reject them and risk being ejected from the 19-nation bloc. More austerity threatens to erode GDP and prolong the cycle of unsustainable debt but the consequences of exiting the Eurozone would also be significant and far-reaching.
Without further financial support it looks almost certain that Greece will default on a €1.6 billion debt repayment to the IMF on Tuesday, which in itself will not necessarily trigger a ‘Grexit’ but will certainly put the wheels in motion. The outcome of Sunday’s referendum may well prove academic if Greece’s fate as already been sealed by then.
Queues outside of Greek banks were described as ‘endless’ on Sunday evening and the panic factor created by the introduction of capital controls could exacerbate a potential collapse of the Greek banking system over the next few weeks – possibly the next couple of days. The logistics, as well as the consequences, of a member state leaving the currency bloc are uncertain. Greece is well into the final act of its debt crisis tragedy but nobody knows what will be written in the final scene.
US Dollar
The Pound to US Dollar exchange rate barely moved an inch last Friday as speculative investors continued to mull over the prospects of rate hikes in Britain and the US.
It is currently anticipated that the Federal Reserve will raise rates in December of this year and that the Bank of England will follow suite with a rate hike in the first quarter of 2016. However, issues such as soft US economic indicators and global financial headwinds flowing across the Atlantic from the Mediterranean raise the possibility that the Fed may opt to delay until 2016 also.
Data on Friday printed in the US Dollar’s favour, however, with consumer sentiment rising unexpectedly to a five-month high of 96.1. Sadly for the ‘Greenback’, it was not enough to warrant a surge in demand for the US Dollar.
Canadian Dollar
The Canadian Dollar stuttered against Sterling on Friday morning but recovered during the afternoon as crude oil prices rallied. Ultimately, GBP/CAD registered gains of around a third of a cent on the day as markets ignored ‘Grexit’-related risk aversion trends to send the commodity-sensitive ‘Loonie’ higher during the evening.
Australian Dollar
Whereas the Canadian Dollar managed to escape unscathed from the latest set of ‘Grexit’ fears, the Australian Dollar was not so lucky: GBP/AUD rose by around 240 pips to a fresh 71-month high on Friday.
Market jitters regarding the extremely real possibility that Greece could become the first country to leave the Eurozone, combined with bets that the Reserve Bank of Australia is planning to reduce interest rates over the next few months, drove investors out of the ‘Aussie’ Dollar in their drones.
New Zealand Dollar
The New Zealand Dollar followed its Antipodean counterpart, the ‘Aussie’, lower on Friday as anxious traders reduced their exposure to less liquid currencies. The latest breakdown in Greek debt talks opens the door to grand levels of uncertainty as the Hellenic nation inches closer to the unchartered territory of Eurozone expulsion. And subsequently, investors have piled out of the ‘Kiwi’ in favour of ‘safer’ havens such as the Pound, which are less susceptible to sharp fluctuations.
Data Released Today
09:30 GBP Mortgage Approvals (MAY) 68.5K
13:00 EUR German Consumer Price Index (YoY) (JUN P) 0.5%