Headlines
UK GDP continues to stoke Sterling demand –
Mortgage approvals hit 7-year high.
GBP/EUR rallies 50 pips –
Tsipras says Greece will get debt relief in Nov.
‘Cable’ up slightly on Fed statement –
Markets view announcement as mildly dovish.
GBP/CAD close to 6.5-yr high –
Pound hits new 6-year high vs. ‘Aussie’.
Sterling
The Pound remained at elevated levels against most of the majors yesterday as Tuesday’s sturdy second quarter UK GDP report continued to bolster demand. Sterling also garnered support following the release of mortgage data yesterday showing that loans for house purchases increased by the most in almost seven years in June. The 66,582 surge in mortgage approvals reflects renewed confidence in the housing market following the Conservative’s election victory in May, which prevented Labour laying out new measures to tax big spend house purchases.
Other than the GfK consumer confidence figure, there are no more significant British ecostats due for release this week, which means that Sterling sentiment will likely be driven by wider market trends or by any surprise remarks from Bank of England officials on the timing of the first UK rate hike since 2007.
Euro
The Pound rallied by just under half a cent against the Euro yesterday as Greek PM Alexis Tsipras threatened early elections if radical members of his left-wing Syriza party rebelled against the government’s decision to embark on harsh austerity measures in exchange for much-needed financial aid. Tsipras also stated that the Hellenic Republic would receive debt relief in November, if the proposed bailout package is secured as planned.
IMF Chief Christine Lagarde waded in with remarks suggesting that debt relief was, indeed, very much part of the Fund’s plans going forward. Lagarde suggested the IMF would not sign up to a programme that did not include ‘significant debt restructuring’ but vowed to respond only to actions rather than words – ‘deeds, not creeds’ – which appeared to be a thinly-veiled comment on the wider world’s distrust towards the Greek government.
Meanwhile, former Greek finance minister Yanis Varoufakis faced spurious charges of ‘high treason’ for leading his government down an idealistic path that actually hindered the nation’s negotiating position and, perhaps more credible, charges of running a criminal organisation, relating to his plan to create a parallel banking system using hacked tax codes.
Data later today is predicted to show that German consumer prices remained weak – albeit better than Britain’s 0.0% – at 0.3% in July. However, the data is unlikely to have a strong impact on GBP/EUR trading.
US Dollar
‘Cable’ strengthened by around a quarter of a cent yesterday in reaction to the latest policy announcement from the Federal Reserve. The world’s most important central bank left rates on hold at 0.25% but suggested that interest rates would rise at some point this year. The statement hurt the ‘Greenback’ because it was not seen to put in enough groundwork to prepare markets for a rate rise this September. Subsequently rate hike bets were pushed forward slightly to reflect the growing opinion that the Fed might wait until December to begin its tightening cycle.
All in all the modifications to the Fed statement were not seen as sufficient enough to warrant a hawkish view, which in turn was seen as a dovish signal. The ‘Greenback’ could rally if we are treated to a bumper second quarter US GDP report this afternoon. However, if the growth figures undershoot estimates of 2.5% we could see Sterling surge against the US Dollar as September Fed rate hike bets collapse completely.
Canadian Dollar
Sterling rode the ‘Big Dipper’ against the Canadian Dollar yesterday, rallying by over 120 pips initially before plunging -150 pips during the afternoon. Investors caught on the wrong side of the GBP/CAD rollercoaster movement must have been left feeling little queasy.
With further monetary loosening on the cards, severe volatility issues in China and fears of another collapse in commodity prices, the risk-sensitive ‘Loonie’ looks to be at risk of sliding to fresh six-year lows over the next few months.
Australian Dollar
Sterling rose to another six-year high against the Australian Dollar yesterday on weak commodity prices and expectations of lower interest rates from the Reserve Bank of Australia.
The Chinese stock market made an astonishing leap into the red (in China red is considered a positive sign and therefore represents upward movements in stocks, whilst green represents downward moves) yesterday as government efforts to stabilise the system appeared to pay off. Large artificial investments in fallen shares brought the Beijing benchmark index up by 3.5%, which went some of the way to levelling out Monday’s -8.5% plunge.
However, demand for the ‘Aussie’ did not rise in tandem with the Chinese stock index because traders were concerned that the Chinese government’s efforts may prove unsustainable.
New Zealand Dollar
The Pound to New Zealand Dollar exchange rate rallied somewhat yesterday as traders reacted to a statement from the Reserve Bank of New Zealand suggesting that there will be further interest rate cuts in the future. Although the latest remarks did not really add anything new to the table, they still helped drive Sterling a little bit higher against the ‘Kiwi’ over the day.
Data Released Today
13:00 EUR German Consumer Price Index (YoY) (JUL P) High 0.3%
13:30 USD Gross Domestic Product (Annualized) (2Q A) High 2.5%
13:30 USD Personal Consumption (2Q A) High 2.7%
13:30 USD Initial Jobless Claims (JUL 25) Medium 270K