Headlines
Quiet day of UK data –
Foreign reports drive market sentiment.
GBP/EUR rallies 60 pips –
German inflation slows, IMF questions Greek deal.
US GDP report signals rebound –
‘Cable’ trades flatly.
GBP/CAD close to 6.5-yr high –
Canadian GDP report on tap.
Sterling
With little fresh domestic stimulus to react to, holders of the Pound opted against embarking on large trades yesterday. However, data released in the US, showing that growth rebounded in the second quarter, helped Sterling to appreciate against the risk-sensitive commodity bloc as Fed rate hike bets improved slightly. Before the weekend demand for the UK tender will likely depend on foreign news flows once more.
Euro
The Pound to Euro exchange rate rallied by around 60 cents yesterday as German consumer prices came in weaker-than-expected at 0.2%. Although the inflation index was only slightly below the consensus of 0.3% the miss helped set Sterling on its way to a day of steady gains.
Matters were made worse during the afternoon when the IMF said that Greece’s large debt pile paired with the Hellenic Republic’s chequered history of implementing economic reforms meant that Greece was unsuitable for a third IMF bailout. The concerning statement came as Greek PM Alexis Tsipras threatened to hold an internal referendum within the Syriza party on whether to accept the conditions of the latest bailout deal. And it is exactly uncertainties such as this that are putting the IMF off from signing up to the bill.
The single currency weakened following the IMF and Tsipras announcements as jittery traders hedged against the possibility that the Greek government could renege on the recently agreed bailout package.
US Dollar
The Pound to US Dollar exchange rate remained fairly flat yesterday, with ‘Cable’ managing to attain a stronghold above technical resistance for most of the London session.
Demand for the ‘Greenback’ did spike during the afternoon when the latest US growth report showed that the economy rebounded from a previously reported -0.2% slump to strengthen 2.3% in the second quarter. The first quarter GDP result was actually upgraded to show an expansion of +0.6% in the first three months of the year but this did not lead to a massive surge in Federal Reserve rate hike bets and the Dollar’s performance remained muted versus Sterling.
Some analysts said the upbeat annualised growth print of 2.3% paired with the positive revision to the Q1 figures showed that the US economy was ready for a tightening of monetary policy but the consensus appeared to be that Fed policymakers would wait until December to start its long-anticipated hiking cycle.
Canadian Dollar
Sterling rallied by around 80 pips against the Canadian Dollar yesterday in reaction to the sturdy US GDP report, which led to a softening in demand for the commodity-correlated ‘Loonie’ due to a perceived mildly increased chance of a rise in Fed rates.
Annualised Canadian economic growth is tipped to slow from 1.2% to 0.8% tomorrow but the monthly GDP indicator is expected to rise minimally from -0.1% to 0.0%. Traders are unlikely to pile into the Canadian Dollar following the results and there is every chance that the ‘Loonie’ could decline if the growth report is seen to disappoint market expectations.
Australian Dollar
The recent erosion in the value of the Australian Dollar continued yesterday as investors chipped away at the Antipodean currency and dragged it to a fresh six-year low against Sterling. Technical trading patterns point towards further losses for the ‘Aussie’ whilst the current climate of sliding commodity prices and Chinese uncertainty appear to corroborate calls for the Australian Dollar’s three-month, 40-pip, losing streak to continue.
New Zealand Dollar
The Pound appreciated by almost two cents yesterday as the recent relief rally in favour of the ‘Kiwi’ started to fade. Fundamentals, which include a hawkish Bank of England and an extremely dovish Reserve Bank of New Zealand, suggest that there could be further losses in store for the New Zealand Dollar over the next few months.
Data Released Today
10:00 EUR Euro-Zone Unemployment Rate (JUN) Medium 11.0%
10:00 EUR Euro-Zone Consumer Price Index Estimate (YoY) (JUL) High 0.2%
13:30 CAD Gross Domestic Product (MoM) (MAY) Medium 0.0%
13:30 CAD Gross Domestic Product (YoY) (MAY) High 0.8%
15:00 USD U. of Michigan Confidence (JUL F) Medium 94