Headlines
UK manufacturing report on tap –
PMI score of 51.6 predicted.
GBP/EUR down 50 pips –
Eurozone inflation steady at 0.2%.
US Dollar down on labour data –
0.2% slowest wage growth since records began in ’82.
GBP/CAD hits new to 6.5-yr high –
Canadian GDP contracts for 5th month.
Sterling
Towards the end of last week’s session a report surfaced online indicating that a powerful criminal network had infiltrated the Bank of England back in 1998. The report suggested that a high-flying market speculator had engaged in a sexual affair with the wife of a BoE policymaker in order to obtain sensitive information regarding interest rate decisions.
hort of such illicit methods of obtaining information we will have to rely on UK ecostats and public statements from BoE officials to try and work out when interest rates are going to rise over the next few months. This morning’s manufacturing report could give us a little bit of a clue but Wednesday’s service sector PMI will likely have a larger impact on rate hike bets because it accounts for over 70% of total British economic output. But the most important event to look out for could be Thursday’s BoE inflation report because any sign that the central bank expects price pressures to accelerate in the second half of the year could persuade investors to start pricing in the first rate rise in either December of this year or January of next.
Euro
Last Friday it was reported that Eurozone consumer prices held steady at 0.2% as expected in July. However, demand for the single currency increased thanks to an unexpected uptick in core consumer prices from 0.8% to 1.0%. The Euro also benefitted from a bumper 5.1% year-on-year rise in German retail sales but sentiment was softened by the Eurozone unemployment coming in at 11.1%.
The latest development in relation to the Greek debt crisis saw Mina Andreeva of the European Commission tell reporters that the IMF’s demands for debt relief are ‘fully compatible’ with EU plans to push ahead and negotiate a third bailout deal. The statement was seen as a positive step as it indicates that A) the IMF will probably pledge its support for the package and B) debt relief could help bring Greece back onto the path of fiscal sustainability.
GBP/EUR declined by around -170 pips on Friday morning but ended the day down by just -50 pips.
US Dollar
After initially sliding half a cent on Friday morning the Pound to US Dollar exchange rate rallied by around 120 pips on Friday afternoon in reaction to a downbeat US wage report.
The Department of Labour reported that wages and benefits rose by just 0.2% in the second quarter, which was below expectations of 0.6% and the lowest quarterly increase since records began in 1982. The disappointing result had a marked impact on demand for the ‘Greenback’ and also on global financial markets in general because it was seen to make the prospect of a Federal Reserve rate hike in September even less likely than originally estimated. The first piece of Fed tightening is expected to take place in December this year but if US ecostats continue to underwhelm the Dollar could begin to struggle as rate hike bets are pushed back into the New Year.
Canadian Dollar
Sterling surged to its best exchange rate against the Canadian Dollar since October 2008 on Friday as markets reacted to another dismal economic growth report. Statistics Canada reported that the North American economy shrunk by -0.2% in May, marking five consecutive months of contraction. The mild recession currently being experienced in Canada shows just how heavily the nation relies on its commodity export sector. Commodity prices tumbled around -50% in the second half of 2014 and, despite a resurgence at the beginning of this year, are beginning to tumble again. This bodes badly for the ‘Loonie’ because officials at the Bank of Canada are likely to loosen policy even further in an attempt to soothe the crisis.
GBP/CAD rose by over 150 pips to reach a near-seven-year high in reaction to the -0.2% print, which was lower than the median market forecast of 0.0%. In annual terms GDP printed at 0.5%, down from 1.2% and lower than expectations of 0.8%.
Matters are likely to be made worse by the unsettling announcement over the weekend from ruling Prime Minister Stephen Harper that general elections will be held on October 19th.
Australian Dollar
The Pound lost a little bit of ground against the Australian Dollar on Friday, despite hitting a fresh six-year high at midday. The ‘Aussie’ clawed back some of its recent losses during the afternoon when traders got their hands on the latest US labour market data. The underwhelming wage growth figure boosted investors’ appetite for perceived riskier assets as September Fed rate hike bets deteriorated, and this helped to drive the ‘Aussie’ higher against the Pound.
New Zealand Dollar
The Pound to New Zealand Dollar exchange rate struck a fortnightly high on Friday after appreciating 200 pips in the morning. However, GBP/NZD ended flat on the day because traders were minded to revaluate their Fed rate hike bets following the downbeat US wage growth report.
Data Released Today
09:30 GBP Markit UK PMI Manufacturing s.a. (JUL) Medium 51.6
13:30 USD Personal Consumption Expenditure Core (YoY) (JUN) High 1.2%
15:00 USD ISM Manufacturing (JUL) High 53.5