Headlines
UK construction data on tap –
Sturdy gains anticipated.
Greece registers shock GDP growth in Q2 –
+0.8% expansion compared to anticipated -0.5% contraction.
PBoC devalues Chinese Yuan –
Again…Again!
US retail data supports ‘Greenback’
– American data will determine timing of first rate hike.
Sterling
There were no significant UK economic reports released yesterday and subsequently the Pound traded in response to events taking place on foreign soils. Today’s session may be a little bit more focussed on domestic matters because there is a UK construction report due this morning which is predicted to show a fairly juicy acceleration in output from 1.3% to 3.3% between May and June.
The construction sector has lagged the services industry over the past few years and although building work contributes around ten times less than tertiary output to total Gross Domestic Product investors are keen to see the economy rebalance. And subsequently a robust score this morning could potentially give Sterling a little bit of a boost.
Euro
The Pound to Euro exchange rate rallied by around 70 pips yesterday morning but GBP/EUR consolidated its gains by the end of the London session.
Data out of Greece, shockingly, showed that the embattled Hellenic Republic posted economic growth of 0.8% in the second quarter – a full point higher than the 0.7% GDP expansion witnessed here in the UK. However, the data corresponds to the time period before capital controls were imposed and it is widely anticipated that Greece will suffer a dire contraction in the third quarter as liquidity issues strangle the domestic economy.
In Germany inflation was seen to have remained at a relatively low rate of 0.2% in July. Today’s key European report is tipped to show that consumer prices in the currency bloc also remained at 0.2% last month. A separate data print is likely to confirm that the Eurozone registered sturdy growth of 0.4% in Q2.
US Dollar
Sterling got off to a decent start against the US Dollar yesterday but the Pound’s prospects were dealt a blow when American data showed that US advanced retail sales rebounded from a -0.3% contraction to grow by +0.6% last month.
The upbeat US consumer spending report took on added significance on this occasion. Not just because domestic activity accounts for around 87% of total US economic output, but also because Federal Reserve policymakers recently stated that upcoming US ecostats would likely determine the timing of the first Fed rate hike. The recent volatility in China has been interpreted as a dovish signal for US monetary policy but recent domestic prints – bar inflation and perhaps wage growth – appear to put the US central bank on track for lift off in September.
Canadian Dollar
A relatively inconsequential Canadian housing starts report showed that new home builds accelerated mildly from 1.2% to 1.3% in June but demand for the Canadian Dollar was negatively impacted by Fed rate hike bets and the latest slice of intervention from the Chinese national bank.
The risk-sensitive ‘Loonie’ had gained ground on Wednesday in response to a growing fear that instability in the Asia Pacific region would persuade Fed policymakers to delay raising interest rates. However, markets are fickle and those dovish talks were put to bed yesterday – although the possibility of a September rate hike is far from assured – and demand for the ‘Greenback’ surged. This subsequently led to a drop-off in demand for the Canadian Dollar and helped the Pound register a respectable 130 pip appreciation.
Australian Dollar
Oops we did it again – is not what the People’s Bank of China (PBoC) said on Thursday. Although they did roll out their third ‘one-off’ devaluation of the Chinese Yuan in as many days.
The third and so-called ‘final’ central bank sanctioned depreciation – this time of of -1% – completed a -5% drop in the Yuan’s value this week. This means that Chinese importers have -5% less buying power when looking to purchase goods from abroad. As this subsequently means that Australian exporters could receive less orders from China over the next few months, demand for the commodity-correlated Australian Dollar shrunk in response to the latest announcement.
New Zealand Dollar
The Pound also managed to register an impressive set of daily gains against the New Zealand Dollar in response to the PBoC’s third currency devaluation. Sterling strengthened by more than 250 pips yesterday thanks, in part, to the Chinese policy announcement. Matters were made worse for the ‘Kiwi’ by the latest wave of Fed rate hike optimism. Disappointing domestic retail sales figures piled further pressure on the South Pacific asset during the Australasian session.
Data Released Today
09:30 GBP Construction Output s.a. (YoY) (JUN) Medium 3.3%
10:00 EUR Euro-Zone Consumer Price Index (YoY) (JUL F) Medium 0.2%
10:00 EUR Euro-Zone Gross Domestic Product s.a. (QoQ) (2Q A) Medium 0.4%
14:15 USD Industrial Production (JUL) Medium 0.3%
15:00 USD U. of Michigan Confidence (AUG P) High 93.6