Headlines
Pound Strengthens following BoE minutes –
Possibility of 3 rate hike votes in August.
Sterling rises in run-up to Greek vote –
Latest austerity bill passes.
GBP/USD surpasses resistance –
Technical patterns bode well for Pound.
GBP/CAD hits new 6.5-yr high –
GBP/NZD fluctuates as RBNZ cuts rates -25bps.
Sterling
The Pound rose against the majors yesterday in reaction to the latest Bank of England minutes report, which indicated that the recent breakthrough in Greek debt negotiations could trigger a number of policymakers to start voting for higher interest rates.
The central bank literature showed that the MPC’s decision to hold rates in July was ‘clear cut’ but it was noted that the threat of a Greek exit from the Eurozone was an important factor in the discussions, which took place two weeks ago. The minutes read: ‘Absent that uncertainty [of a ‘Grexit’], the decision between holding the bank rate at its current level versus a small increase was becoming more finely balanced’. There is a contingent of forecasters who now expect three bank officials to vote for a hike in August.
Governor Mark Carney’s hawkish comments last week on the prospect of a rise in rates around the turn of the year came back into focus and Sterling strengthened against all of the majors following the release of the report as investors continued to bet that the BoE will raise rates sometime between December 2015 and April 2016.
Euro
Sterling rallied by around 120 pips against the Euro yesterday as BoE rate hike bets bolstered the appeal of the Pound whilst Greek parliamentary concerns weighed over the single currency.
Many of Greek Prime Minister Alexis Tsipras’ own officials rebelled against the leftist leader at last night’s vote but the latest set of emergency measures passed thanks to widespread support from opposition MPs. The controversial new bill featured changes to the way failing banks will be handled and an overhaul of the nation’s civil code to help speed up legal proceedings.
There is potential for further Sterling gains this morning if the UK retail sales report prints positively, as expected. Markets anticipate a sturdy annual report readout of 5.1%, which could be enough to push GBP/EUR to a fresh seven-year high.
US Dollar
The Pound to US Dollar exchange rate surpassed a technical resistance level yesterday thanks to the uplifting BoE minutes report, which showed that policymakers are becoming more willing to consider tightening UK monetary policy.
‘Cable’ grew by around half a cent as investors read between the lines and decided that the prospect of the BoE raising rates at around the same time as the Federal Reserve was getting more and more realistic. If Sterling manages to push ahead following this morning’s UK retail sales report then it is entirely possible that we could see GBP/USD resume the technical uptrend that took the Pound to a seven-month high midway through June.
Canadian Dollar
The latest collapse in global commodity prices, paired with a new surge of BoE rate hike bets, took the Pound to Canadian Dollar exchange rate to a fresh six-and-a-half-year high yesterday.
Sterling registered a further 200-pip gain against the ‘Loonie’ as a sharp slide in gold, zinc and platinum prices took an index of raw materials lower. Global commodities are now -45% less valuable than they were at the height of the boom in 2011.
Australian Dollar
It was reported that Australian consumer prices increased from 1.3% to 1.5% in the second quarter, which was slightly lower than the median market forecast of 1.7%. But the risk-sensitive ‘Aussie’ was more receptive to comments from Reserve Bank of Australia Governor Glenn Stevens suggesting that further rate cuts remain ‘on the table’, which helped drive GBP/AUD higher by around 150 pips to settle just below the six-year high the pairing struck at the beginning of the week.
New Zealand Dollar
Sliding commodity prices and BoE rate hike bets took the Pound higher by around 250 pips against the New Zealand Dollar yesterday ahead of the Reserve Bank of New Zealand’s latest interest rate decision.
During the night the RBNZ announced that it was cutting rates by -25 basis points to 3.00% but surprisingly this allowed the ‘Kiwi’ to recover thanks to relief among local traders that the central bank did not slash rates by even more than 0.25%.
Data Released Today
09:30 GBP Retail Sales (YoY) (JUN)
13:30 CAD Retail Sales (MoM) (MAY)
13:30 USD Initial Jobless Claims (JUL 18)
15:00 EUR Euro-Zone Consumer Confidence (JUL A)
23:45 NZD Trade Balance (New Zealand dollars) (JUN)