Headlines
UK unemployment rises unexpectedly –
British wage growth hits 5-yr high.
Pound hits 2-week-high vs. Euro
– Greek PMs approve bailout deal.
GBP/USD strikes 2-week high –
US rates to rise by end of year.
GBP/CAD hits new 6.5-yr high on BOC rate cut –
GBP/NZD hits new 5.5-yr high.
Sterling
The Pound remained at elevated levels against the majors yesterday as labour data showed a rise in both unemployment and wages.
Yesterday data showed that, for the first time in more than two years, the headline jobless rate rose in May. A shock -67,000 drop in employment drove the unemployment rate higher from 5.5% to 5.6%. However, Sterling did not sustain any serious losses following the result because traders were fairy content with the average earnings section of the report, which showed that wage growth hit its highest level since April 2010.
Wages had been tipped to rise from 2.7% to 3.3% but holders of Sterling did not seem to mind this slight overestimation, especially after the hawkish comments on the prospect of an imminent rate hike from Bank of England Governor Mark Carney and policymaker David Miles on Tuesday.
Euro
The Pound remained at its highest level for two weeks, and close to its highest level for seven years, during the day yesterday as markets geared up for the crucial parliamentary vote in Athens.
Deputy Greek finance minister Nadia Valavani resigned ahead of the vote, insisting that the ‘depressing’ bailout package was not a ‘viable solution’ to Greece’s problems. Over half of the ruling Syriza party’s committee members (not MPs with votes, mind) shared her sentiment explicitly, whilst British PM David Cameron, French finance minister Michel Sapin and the IMF declared that the Hellenic Republic required large scale debt relief if it stood any chance of returning to fiscal sustainability.
In the official vote 229 Greek MPs voted yes to the new austerity measures, which cleared one of the biggest short-term hurdles and should ensure that the latest tranche of financial aid is released provided that the package is ratified by other Eurozone nations later on in the week. However, Tsipras suffered a rebellion of 38 defectors from within his own party, suggesting that a cabinet reshuffle will be needed over the next few weeks.
US Dollar
Sterling reached a new fortnightly high against the US Dollar yesterday morning as investors reacted to the largest increase in UK wages for five years. The Pound was also supported by comments from BoE officials on the possibility that the UK central bank could begin its hiking cycle ahead of the Fed.
Indeed, Federal Reserve Chairwoman Janet Yellen told congress yesterday afternoon that volatile financial conditions in China and the ongoing Hellenic crisis could delay the first piece of monetary tightening in the US. However, Yellen did insist that interest rates would likely rise by the end of the year, providing US economic indicators continue to improve as they have of late.
A US industrial production print gave the ‘Greenback’ a little bit of a boost, coming in at 0.3% compared to forecasts of 0.2%. But manufacturing output let the side down, with a score of 0.0% compared to estimates of 0.1%.
Canadian Dollar
The Pound surged to a new six-and-a-half-year high against the Canadian Dollar yesterday, rallying by over 300 pips in reaction to the Bank of Canada’s decision to cut rates by -25 basis points to 0.50%.
BoC Governor Stephen Poloz cited a steeper-than-anticipated contraction in economic output in the first half of the year and a ‘puzzling’ lack of growth in non-energy exports as reasons for the bank’s latest piece of monetary loosening. The ‘Loonie’ was also hurt by the BoC’s decision to cut its 2015 growth forecast from 1.9% to 1.1%.
Australian Dollar
The Australian Dollar rose in value across the board during the Asian session yesterday as Chinese GDP came in sturdily. However, the ‘Aussie’ failed to hold onto these gains against the Pound.
Chinese growth printed at an annualised pace of 7.0% for the second quarter, which beat estimates of 6.8% and gave the risk-sensitive ‘Aussie’ a leg-up as traders readjusted their forecasts for cross-border trade between the two nations. Despite the upbeat Chinese figures, GBP/AUD rose by over 200 pips to its strongest exchange rate for six years.
New Zealand Dollar
The Pound to New Zealand Dollar exchange rate peaked at a new five-and-a-half-year high yesterday afternoon as traders reacted to the latest Fonterra dairy auction, which showed a dreadful -10.7% drop in prices paid for the Antipodean nation’s most lucrative export. Demand for the ‘Kiwi’ plummeted following the result as fears of further slowdowns in the economy and further reductions to the Reserve Bank of New Zealand base rate weighed on the New Zealand Dollar. GBP/NZD rallied by a stupendous 500 pips on the day.
Data Released Today
10:00 EUR Euro-Zone Consumer Price Index (YoY) (JUN F) Medium 0.2%
12:45 EUR European Central Bank Rate Decision (JUL 16) High 0.1%
12:45 EUR ECB Deposit Facility Rate (JUL 16) Medium -0.20%