Headlines
GBP/EUR Drops to 1.39 before UK Budget –
New spending cuts expected
Greece given more time –
Sunday will decide the nation’s fate
US Dollar Performance Mixed –
FOMC minutes ahead
AUD/USD Hits New Six-Year Low –
Aussie down 9% since May
Sterling
With Chancellor of the Exchequer George Osborne due to present the first wholly Conservative budget for nearly twenty years later today, the Pound was trending in a broadly softer position.
The GBP/EUR exchange rate fell back to the 1.39 level on Wednesday as Greece was given until Sunday to agree to a reform proposal and secure the nation’s continued membership of the Eurozone. While the European Central Bank (ECB) is due to hold a conference call to discuss Greek funding today, the common currency was able to recover ground as investors hoped progress would be made during the next few days.
Meanwhile, ‘Cable’ slumped to 1.54 as safe-haven inflows supported the US Dollar and the US trade deficit was shown to have widened by slightly less-than-expected in May. Notable GBP/USD exchange rate movement could occur later as the minutes from the last Federal Open Market Committee (FOMC) policy meeting are published. Hawkish rhetoric would drive GBP/USD lower still while dovish remarks could help Sterling recoup losses.
Today’s UK reports have largely had little impact on the Pound, with the BRC Shop Price Index printing at -1.3% and Halifax House Prices coming in at 1.7% (rather than the 0.3% forecast) in June. However, data from KPMG did show that the pace of UK hiring slowed last month – a development which may have an impact on the Bank of England’s (BoE) timeline for increasing interest rates.
Tuesday was supposed to be a decisive day for Greece, but yet another delay in negotiations between the nation and its lenders meant that the Euro was able to edge higher against rivals like the Pound and US Dollar as the threat of an immediate Grexit was lifted – for the time being at least.
After it was announced that Greece now has until Sunday to come to terms with its creditors the Euro rallied to a high of 0.7160 against the Pound and 1.1033 against the US Dollar.
The situation in the heavily indebted nation is still desperate to say the least, with a repayment to the European Central Bank (ECB) looming and the financial institution still to decide on appropriate funding, but there is hope that this grace period could result in a workable solution being reached.
US Dollar
A report revealing that the US trade deficit didn’t widen by quite as much as forecast in May lent the US Dollar a little support on Tuesday, but ‘Greenback’ gains were largely the result of investors flocking to safe-haven assets to counter any potential fallout from Greece.
Whether or not the US Dollar’s uptrend continues largely depends on the content of tonight’s FOMC minutes. Towards the end of last month Fed official Jerome Powell hinted that two interest rate revisions could occur in 2015 and put the odds of a September rate adjustment at 50%. If the minutes support these intimations we could see the ‘Greenback’ extend gains against the Pound and touch new highs against higher-risk peers like the Australian Dollar.
However, while hawkish minutes are likely to boost the US Dollar, investors will also be bearing in mind the fact that they were taken ahead of the publication of a fairly disappointing US Non-Farm Payrolls report. The slowing wage growth recorded in June may give policymakers cause to consider taking action in September.
As the turmoil in the Chinese stock market persisted oil prices continued to tank, with the value of black gold now being down 6% on the week.
The commodity-correlated Canadian Dollar followed oil lower and the ‘Loonie’ registered declines against the US Dollar and Euro ahead of the release of domestic building permits data.
Today’s Canadian housing report is forecast to show a -5.0% month-on-month drop in building permits in May following the 11.6% increase recorded in April. Should the ecostat come in at or below this level further Canadian Dollar losses could be on the cards.
Australian Dollar
Earlier this week the Reserve Bank of Australia (RBA) cited the recent weakening in the ‘Aussie’ as one of the reasons behind policymakers leaving borrowing costs on hold and the softness in the currency continued on Wednesday.
The Australian Dollar fell to 0.7369 against the US Dollar, its lowest level since 2009, as a bearish commodities market and stilted demand for higher risk currencies took a toll. With upcoming Australian employment figures predicted to show an increase in the nation’s jobless rate we could see the Australian Dollar slide to fresh six-year lows before the end of the week.
With the Australian Dollar flat lining, the ‘Kiwi’ was able to achieve a high of 0.9006 against is neighboring currency on Wednesday. The New Zealand Dollar’s performance against other peers was less impressive however, with the NZD/USD pairing remaining close to five-year lows.
The New Zealand Dollar lost some of its appeal earlier this week as a report conducted by NZIER put domestic expansion below 3% in the year ahead. The institution also implied that it believes more interest rate cuts are on the horizon. New Zealand’s Card Spending figures for June could prompt NZD fluctuations during the local session.
Data Released Today
08:00 GBP Halifax House Prices (JUN) (MoM) Low 1.7% 0.3% 0.3%
12:00 USD MBA Mortgage Applications (JUL 3) Medium -4.7%
13:30 CAD Building Permits (MoM) (MAY) Medium -5.0% 11.6%
19:00 USD U.S. Fed Releases Minutes from June 16-17 FOMC Meeting High