Headlines
GBP/EUR Holds 1.39 before BoE Announcement –
No policy change forecast
GBP/USD Recovers Ground –
FOMC dovish on Greece
Australian Dollar Gains –
Despite iron ore slump
NZD Broadly Stronger –
Advances after Fed minutes
Sterling
The Pound fell victim to a widespread sell-off on Wednesday, with the currency recording notable losses against both the Euro and US Dollar.
Although aspects of the UK’s Summer Budget were well received, Sterling failed to hold its own against a bullish ‘Greenback’ and recovering Euro. The Chancellor of the Exchequer also negatively revised his growth forecast for the UK economy from 2.5% to 2.4% in 2015, pouring more cold water on Bank of England interest rate hike projections.
During the European session the GBP/USD exchange rate fell to a one-month low while the GBP/EUR exchange rate dipped to 1.38.
However, moderately dovish policy meeting minutes from the Federal Open Market Committee (FOMC) have since seen ‘Cable’ recoup some of yesterday’s losses while the GBP/EUR pairing returned to 1.39 after Germany’s current account and trade surpluses were shown to have narrowed by more-than-predicted.
Today’s Bank of England (BoE) interest rate decision is unlikely to have much of an impact on the Pound. Given the political turmoil in Greece and weaker aspects of the UK’s economic recovery (inflation, manufacturing) the BoE is expected to pursue a policy of steady interest rates for the foreseeable future.
Euro
The news that Greece formally requested a third bailout, with the promise of presenting reform proposals before Sunday’s gathering of European officials, gave the Euro a boost yesterday and the common currency staged a particularly impressive rebound against Sterling.
Greece also opted to extend the national bank holiday to Sunday to stave off financial collapse until finding out whether aid would be forthcoming and the European Central Bank (ECB) announced it would continue to supply the same level of Emergency Liquidity Assistance.
With optimism that Greece will finally come to terms with its creditors and bring an end to months of uncertainty rising, the Euro followed suit. However, the common currency pared gains on Thursday as leading economists predicted that a Grexit would still occur and ECB President Mario Draghi made some less-than-encouraging remarks about the situation.
Although domestic data is having a limited impact on the Euro with Greece so firmly in the spotlight, this morning’s German ecostats revealed a sharper-than-forecast narrowing in both the nation’s current account and trade surpluses.
US Dollar
Turmoil in the Chinese stock market, slumping commodity prices and concerns relating to Greece led to the US Dollar adopting a bullish relationship with most of its rivals this week.
The ‘Greenback’ spent much of Wednesday riding high and advanced to its strongest level for a month against the Pound ahead of the release of the minutes from the latest Federal Open Market Committee (FOMC) meeting.
However, the US Dollar eased back from recent highs as the minutes reduced the odds of interest rates being raised in September. Policymakers observed that they ‘would need to see more evidence that economic growth was sufficiently strong’ before adjusting borrowing costs and also highlighted that the situations in Greece and China could adversely impact the global economic outlook.
Today’s US Initial and Continuing Jobless Claims numbers could have an impact on US Dollar trading in the hours ahead. A reduction in the number of people applying for unemployment benefits may give the ‘Greenback’ a boost during North American trading.
The Canadian Dollar advanced to its strongest level of July so far against the Pound on Wednesday as the commodity-driven currency recovered from its recent oil-related lows.
Although Canadian Building Permits were shown to have fallen by -14.5% in May, month-on-month, and not the -5.0% forecast, the ‘Loonie’ still strengthened against its US counterpart following the publication of the FOMC minutes.
The Canadian Dollar failed to hold its advance however and the CAD/GBP, CAD/USD exchange rates slipped prior to the publication of today’s Canadian Housing Starts data and New Housing Price Index.
Australian Dollar
After several days of bearish behaviour, during which the Australian Dollar fell to new multi-year lows against both the US Dollar and Pound, the ‘Aussie’ staged something of a rebound during the local session.
The GBP/AUD exchange rate dropped to a low of 2.0540 while the USD/AUD currency pair fell to 1.3345 as investors responded to dovish interest rate commentary from the FOMC, accelerating inflation in China and a better-than-forecast domestic employment report. The Australian economy was shown to have added 7,300 positions (no increase in jobs was expected) while the unemployment rate came in at 6% rather than the 6.1% predicted.
Before the weekend Greek developments and Australia’s Home Loans/Investment Lending reports could be the cause of additional Australian Dollar movement.
The New Zealand Dollar followed its Australian relation higher overnight and posted additional gains against the Pound, US Dollar and Euro as the European session opened.
New Zealand’s Retail Card Spending figure for June came in at 0.5% month-on-month, as expected, following a positively revised 1.3% gain in May. Overall card spending was up 0.6% on the month, a marked slowing in consumer spending from the 1.4% figure recorded the previous month.
With the Reserve Bank of New Zealand (RBNZ) due to deliver its interest rate decision in a couple of weeks, any ecostats with the potential to impact economic policy will be closely attended to.
Data Released Today
12:00 GBP BOE Asset Purchase Target (JUL) High 375B 375B
12:00 GBP Bank of England Rate Decision (JUL 9) High 0.50% 0.50%
13:15 CAD Housing Starts (JUN) Medium 190.0K 201.7K
13:30 CAD New Housing Price Index (YoY) (MAY) Medium 1.1%
13:30 USD Continuing Claims (JUN 27) Medium 2264K
13:30 USD Initial Jobless Claims (JUL 4) Medium 277K 281K