Headlines
BoE official warns of premature hike
– Suggests rates could fall before they rise.
GBP/EUR falls from 7-yr high
– Greece imposes capital controls, emergency Bank Holiday.
Athens to hold referendum on austerity
– Euro leaders label it vote on Euro membership.
GBP/AUD falls from 7-yr high
– GBP/NZD close to 5-yr high.
Sterling
Bank of England rate hike bets were dampened yesterday by remarks from BoE chief economist Andy Haldane. The senior central banker warned that raising rates prematurely could be ’self-defeating’ because it could push the Sterling exchange rate too high and therefore weigh on export growth. Shockingly, Haldane said that he had ‘no bias on either the size or direction of future interest rate moves’, suggesting that the benchmark rate could actually be reduced rather than raised. However, it is more likely than not that this was a piece of verbal intervention, aimed at keeping the Pound’s value down, rather than an actual piece of forward guidance and it seems highly probable that the next move in rates will, in fact, be up.
Later this morning the Office for National Statistics (ONS) will release its latest revision to first quarter GDP. Markets expect the ONS to revise the annualised growth figure higher slightly from 2.4% to 2.5%. It was 17 years ago today that David Batty missed a penalty against Argentina to send England crashing out of World Cup 1998 in France and it would take a similar high-profile ‘miss’ in this morning’s GDP report to significantly weaken Sterling versus the majors today.
Euro
The Pound to Euro exchange rate struck a fresh seven-year high yesterday as markets reacted to emergency measures in Greece.
Athens announced on Sunday evening that banks would not open yesterday and imposed capital controls to limit bank withdrawals.
Yesterday European leaders made it clear that next Sunday’s referendum in Greece on whether or not to accept the latest austerity package in return for aid was essentially a vote on Greece’s membership of the Eurozone. European Commissioner Jean-Claude Juncker said that a NO vote would be seen by the ‘entire planet’ as a sign that the Greek people want to distance themselves from Europe and Italian Prime Minister Matteo Renzi echoed his views, commenting that the Greek referendum is a vote for ‘Euro vs. Drachma’.
Surprisingly, the single currency actually clawed back around 200 pips from the Pound yesterday despite the latest downturn in the crisis. There is potential for the Euro to rebound if, miraculously, a deal is somehow brokered but it looks much more likely that investors will chip away at the single currency over the next few weeks as Greece’s fate becomes ever more apparent.
A weaker-than-anticipated US pending home sales report allowed the Pound to rally by around a quarter of a cent versus the ‘Greenback’ yesterday afternoon. Despite registering an 8.3% increase, traders were disappointed with the housing data because analysts had been primed for a score of 11.8%.
‘Cable’ is currently trading between a couple of semi-significant technical levels. Sterling has struggled in recent days to surpass resistance but if this morning’s UK GDP revision prints positively then we could see GBP/USD push ahead. However, this afternoon’s US consumer confidence report is tipped to show a rise in sentiment from 95.4 to 97.1, which could curtail any rallies in favour of the Pound.
Sterling rose by over a cent against the Canadian Dollar yesterday as markets geared up for this afternoon’s Canadian GDP report. Investors anticipate that the North American economy grew by 0.1% in the month of April, bringing the yearly growth figure up from 1.5% to 1.6%. However, some Canadian ecostats have disappointed so far this year and subsequently markets appeared keen to hedge against the possibility of a miss in today’s figures.
After suffering a sharp depreciation of over -240 pips on Friday the Australian Dollar attracted demand from profit-takers yesterday and subsequently GBP/AUD gave back around 100 pips during the afternoon. However, Reserve Bank of Australia rate cut bets and fears that a Greek exit could ignite a period of global risk aversion mean that the high-beta ‘Aussie’ is sitting on fragile ground and could easily crumble over the next few weeks.
Sterling came within two pips of striking a fresh five-and-a-half-year high against the New Zealand Dollar yesterday but investors took the opportunity to cash-in on profitable GBP/NZD trades and this forced a slight correction. All in all, the Pound ended the day very close to the level it opened at. As with the ‘Aussie’ Dollar, the ‘Kiwi’ is extremely susceptible to the Greek crisis because it is seen as a risk-sensitive currency and is prone to much larger fluctuations than so-called safe-havens such as the Pound, the US Dollar, the Swiss Franc and the Japanese Yen.
Data Released Today
08:55 EUR German Unemployment Rate s.a. (JUN) 6.4%
09:30 GBP Gross Domestic Product (YoY) (1Q F) 2.5%
10:00 EUR Euro-Zone Unemployment Rate (MAY) 11.1%
10:00 EUR Euro-Zone Consumer Price Index Estimate (YoY) (JUN) 0.2%
13:30 CAD Gross Domestic Product (MoM) (APR) 0.1%
13:30 CAD Gross Domestic Product (YoY) (APR) 1.6%
15:00 USD Consumer Confidence (JUN) 97.1