Headlines
UK labour data on tap –
Unemployment tipped to remain at 5.6%.
Greece agrees new bailout with creditors –
Euro rises vs. Pound.
PBoC devalues Chinese Yuan –
Commodity currencies plunge.
Sterling rallies 300 pips vs. ‘Aussie’ –
Chinese buying power decreases.
Sterling
The Pound performed fairly well yesterday against the commodity bloc in reaction to a shock announcement in China, which heightened investors’ distaste for currencies with large exposure to the Chinese dragon. Sterling lost out to the Euro though in reaction to some positive news out of Athens.
There were no significant domestic data releases yesterday but traders will be glued to their screens at 9:30 this morning when the latest UK labour market figures are released. Any surprise falls in unemployment could bolster Bank of England rate hike bets and send the Pound higher. Any surprise spikes in wage growth could prove even more beneficial to the British Pound.
Euro
Yesterday European data showed that economic sentiment in Germany dipped unexpectedly at the beginning of the month. However, the slide from 29.7 to 25.0 was not enough to impact the single currency because investors were buoyed by news that Greece finally managed to agree upon a deal with its creditors.
The deal was clinched after a 23-hour marathon session of negotiations, which saw officials from Greece, the European Commission, the European Central Bank, the European Bailout Fund and the IMF discuss primary budget deficits, the selling of national assets, deregulation of the Greek gas market and further tax hikes.
Markets reacted positively to the announcement and the Euro registered a 60-pip gain against the Pound during the London session as ‘Grexit’ fears receded.
US Dollar
The Pound to US Dollar exchange rate returned to its long-running tight range yesterday as attempts by bulls to take Sterling above key psychological resistance were thwarted, as were moves by the bears to break the Pound’s technical support barrier.
Fluctuations in the value of US Treasury bonds appear to suggest that markets are still optimistic of a rate hike from the Federal Reserve coming fairly soon but fluctuations in the currency market show that not all traders are sold on the idea of a September rate hike. Comments from Fed officials suggest that the decision of when to raise rates will be heavily dependent on US economic data released between now and September. This means that Thursday’s US retail sales report could have a significant impact on the ‘Greenback’.
Canadian Dollar
Sterling rallied by around two cents against the Canadian Dollar yesterday as investors sold the ‘Loonie’ following the People’s Bank of China’s (PBoC) decision to weaken the Yuan by 2%.
For the first time in over two decades the PBoC announced that it was allowing the domestic currency to depreciate by a ‘one-off’ 2%. This should help make Chinese exports cheaper, loosen monetary conditions and make the Yuan more transparent and market-orientated.
The commodity-sensitive Canadian Dollar plunged sharply following the surprise announcement as markets factored in the reduced buying power of Chinese firms.
Australian Dollar
The shock PBoC move also had profound implications for the Australian Dollar. The Pound managed to rack up an impressive daily gain of around 300 pips in reaction to the Chinese Yuan depreciation, which was seen to hurt Australian exporters and could lead to a round of currency devaluations in the Asia Pacific region.
The move means that the Reserve Bank of Australia, which recently signalled it would be holding off on rate cuts, could be forced back into action over the next few months to boost competitiveness.
New Zealand Dollar
The Pound also pushed ahead against the New Zealand Dollar in response to the Chinese central bank devaluation. Sterling strengthened by just under three cents against the ‘Kiwi’ Dollar.
Data Released Today
09:30 GBP ILO Unemployment Rate (3M) (JUN) Medium 5.6%
09:30 GBP Average Weekly Earnings 3M/(YoY) (JUN) Medium 2.8%
10:00 EUR Euro-Zone Industrial Production w.d.a. (YoY) (JUN) Medium 1.7%