Headlines
UK manufacturing strikes 2-yr low
– PMI slows as strong Pound weighs.
GBP/EUR remains strong
– Tsipras brands institutions ‘liars’.
GBP/USD hits 2-week low
– US data impresses.
GBP/AUD close to 7-yr high
– GBP/NZD close to 5-yr high.
Sterling
The Pound weakened versus most of the majors yesterday morning in response to a dud manufacturing report, which showed that factory output cooled to its slowest pace for two years in June.
The manufacturing PMI print disappointed market expectations of 52.5 with a downbeat score of 51.4 as export growth was hurt by 1) the recent appreciation of Sterling and 2) the economic uncertainty in Europe caused by the threat of Greece leaving the Eurozone. Domestic manufacturing activity remained sturdy but the soft PMI figure showed how susceptible the export sector is to events across the Channel. If Greece were to be ejected from the currency bloc it is highly likely that we could see demand from Europe plummet further over the next few months.
Euro
Sterling remained at very strong levels against the single currency yesterday as postulating from both sides of the Greek debate did little to push things forward.
Greek PM Alexis Tsipras put forward a proposal, which included concessions on many but not all of the key issues of contention, in an attempt to extend the expired bailout and provide the basis for a third aid programme. However, German Chancellor Angela Merkel shot him down by saying there would be no negotiating until after Sunday’s referendum in Greece. German finance minister Wolfgang Schauble also criticised the Greek government, suggesting that things have been ‘getting more and more difficult’ since Tsipras came to power in January.
The Syriza leader hit back with a speech aimed at rallying support for a NO vote in Sunday’s referendum, which Tsipras said would give him more leverage to negotiate better terms for the Greek people. Tsipras said that ‘a popular verdict is much stronger than the will of a government’ and accused the institutions of financial ‘asphyxiation’, ‘blackmail’ and ‘lying’ about what the vote on Sunday represents. The Greek PM asserted that the referendum would take place as planned and argued that, contrary to the views of European leaders, a NO would not lead to Greece leaving the 19-nation bloc.
The prospect of an imminent ‘Grexit’ remains high but it is difficult to say whether yesterday’s developments made it more or less likely.
US Dollar
The Pound to US Dollar exchange rate declined by around -80 pips to a fortnightly low yesterday as investors reacted to the downbeat UK manufacturing PMI report.
GBP/USD plunged when the British print was released and ‘Cable’ continued to slide during the afternoon when the headline US manufacturing ISM gauge came in at a better-than-expected 53.5. The ADP employment change index also impressed at 237,000, as did the construction spending report, which rose 0.8% in May to a six-year high of $1 trillion.
Because of the Independence Day Bank Holiday this Friday the latest US non-farm payroll report is going to be released this afternoon. Markets anticipate a sturdy score of 225,000 but anything above 250,000 could drive demand for the ‘Greenback’ whilst anything south of 200,000 could hurt the US Dollar.
Canadian Dollar
Sterling remained close to six-year highs against the Canadian Dollar yesterday as traders overlooked the disappointing UK manufacturing report and focussed on the even more worrying Canadian GDP report, which came in softly on Tuesday. The commodity-correlated ‘Loonie’ was also negatively impacted by falling oil prices and fears that a ‘Grexit’ could wreak havoc in global financial markets.
Australian Dollar
The Pound to Australian Dollar exchange rate stumbled yesterday as markets reacted to the dud British manufacturing report, but global risk aversion trends related to the Greek crisis meant that the ‘Aussie’ was unable to hold onto its morning gains for long.
A strong reading in this afternoon’s NFP report could send the risk-correlated Antipodean currency sliding lower against the Pound because it would likely be seen as a sign that US interest rates are going to rise in the foreseeable future.
New Zealand Dollar
It was a fairly uneventful day for GBP/NZD yesterday as the Pound softened slightly but remained close to five-year highs.
Things could be a little more interesting later today when the US NFP report is released. Like the ‘Aussie’, the ‘Kiwi’ Dollar could easily depreciate if the American labour market appears to be strengthening. On the other hand, the ‘Kiwi’ could get some respite if the NFP report comes in softer-than-expected.
Data Released Today
09:30 GBP Markit/CIPS UK Construction PMI (JUN) 56.5
13:30 USD Change in Non-farm Payrolls (JUN) 230K
13:30 USD Unemployment Rate (JUN) 5.4%
13:30 USD Average Hourly Earnings (YoY) (JUN) 2.3%
15:00 USD Factory Orders (MAY) -0.5%