Headlines
Quiet start to the week
– No significant UK ecostats until Wednesday.
GBP/EUR up 30 pips
– Greek deal talks move forward.
‘Cable’ recovers
– Technical bounce sends GBP/USD up 80 pips.
Pound up vs. Antipodeans
– China & commodities weigh on riskier currencies.
Sterling
It was a fairly quiet day on the financial markets yesterday, which allowed the Pound to recover some of its lost ground. Hopes of a rate rise from the Bank of England before the end of the year may be slim but the central bank is still anticipated to tighten monetary policy in the first quarter of 2016 and knowledge of this helped drive Sterling higher yesterday.
There are no high profile UK ecostats due for release today but tomorrow will see the ILO release its latest British labour market report. The unemployment rate is tipped to remain at 5.6% but wages are predicted to slow from 3.2% to 2.8% and this could impact the appeal of the Pound.
Euro
Sterling rallied mildly by around a third of a cent against the Euro yesterday as Eurozone investor confidence declined from 18.5 to 18.4, amid forecasts of a rise to 20.3. It is believed that stock market volatility in China weighed on sentiment as global growth prospects receded.
Speaking of factors holding back sentiment in the Eurozone: Greek bailout talks moved forward yesterday as technocrats attempted to hammer out a deal to help bring the Hellenic Republic’s debts back under control. No accord was reached yesterday but officials seemed confident that the deal would be clinched by August 20th, when Greece is required to make a debt repayment to the European Central Bank.
It was also reported that sales of new cars were down 24% and sales of new motorbikes were down 39% in July 2015, compared to a year earlier, as capital controls prevented Greeks from splashing out on expensive new motor vehicles. Another consequence of the controls was that, for the first time in their lives, many pensioners signed up for bank cards, which could help increase transparency and crack down on tax evasion.
US Dollar
Without any fresh fundamental stimuli the Pound racked up a strong 80 pip gain against the US Dollar yesterday. Despite the fanfare following last Friday’s sturdy US non-farm payroll report Sterling managed to recover most of its losses after a technical rejection led to a bounce in demand for the UK currency. This suggests that traders may be less confident that the Federal Reserve will raise rates in September than the majority of economic commentators, who labelled Friday’s NFP report a green light for the Fed to tighten.
Looking ahead it will be interesting to see how this week’s UK unemployment report and US retail sales numbers come in. Any significant deviations from the median market forecasts could drive volatility in the pair.
Canadian Dollar
Despite concerns over the latest slump in commodity prices the risk-correlated Canadian Dollar managed to mount a 70 pip rally against the Pound yesterday. It seems that investors were happy to lock-in profit even though Sterling fell from a seven-year high at the end of last week’s session.
But oil prices touched a new eight-month low yesterday and, with OPEC looking to maintain market share rather than increase profit, there is always a chance that Sterling could start creeping back up towards another multi-year high.
Australian Dollar
The Pound to Australian Dollar exchange rate strengthened by around 130 pips yesterday as market players reassessed their outlook for the risk-sensitive ‘Aussie’.
The Antipodean currency rallied towards the tail-end of last week’s session as officials at the Reserve Bank of Australia confirmed that they were comfortable with the current level of the domestic currency, which marked a massive shift in sentiment following months of verbal jawboning. However, the prospect of commodity prices picking up in the second half of the year currently looks slim and volatility in China is likely to weigh on Australian exports. Yesterday’s dip in demand for the ‘Aussie’ reflects a cautious approach to the currency from financial traders.
New Zealand Dollar
Sterling rallied by over a cent against the New Zealand Dollar yesterday as markets punished the ‘Kiwi’ for its exposure to the misfiring Chinese economy. Over the weekend it was reported that Chinese exports plunged 8.1% over the year to July and the New Zealand Dollar suffered as a result.
Data Released Today
EUR German ZEW Survey (Economic Sentiment) (AUG)
CAD Housing Starts (JUL)
USD Wholesale Inventories (JUN)