Demand for Pound Sterling Could Soften Following Q2 GDP Data
The Pound plateaued versus the majors yesterday as traders paused for thought ahead of the latest UK GDP report.
Later this morning the Office for National Statistics is set to release its first estimate of how well the British economy performed in the second quarter. The median market consensus suggests that domestic growth inched up from 0.2% to 0.3% in the April–June quarter, however, the annualised growth rate is predicted to have cooled from 2.0%.
If the data prints inline with expectations it would probably lead to slender losses for the Pound, but we could see Sterling catch a bid if the figures beat the market forecasts.
GBP/EUR Unmoved By Greek Return to Bond Markets
The Pound to Euro exchange rate remained largely unchanged yesterday, despite positive news from one of the Eurozone’s most troubled member states.
After a three-year exile, Greece returned to the debt market yesterday, selling €3 billion of five-year bonds at an interest rate of 4.63%.
The successful bond sale was seen as a signal that confidence in the Hellenic economy is improving, and some investors now believe that Greece will not need a fourth bailout when the current deal expires in 2018.
Despite the good news, the Greek debt-to-GDP ratio remains around 180% and many traders expect the saga to continue for many years to come.
The German business climate IFO beat expectations of 114.9 with an upbeat score of 116.0, suggesting that conditions are improving across the currency bloc. But the day’s news was not enough to push GBP/EUR back towards eight-month lows.
Pound to US Dollar Exchange Rate Could Slide on Hawkish Fed
Sterling held above key psychological support against the US Dollar yesterday. The Pound mounted a little rally around midday but the ‘Greenback’ swiftly recovered, aided by news that US consumer confidence soared in July. The sentiment index jumped from 117.3 to 121.1, marking the second highest score since 2000.
Some analysts believe that the robust consumer confidence figures will lead to sturdy growth in the second half of the year, thus paving the way for an additional rate hike from the Federal Reserve. However, despite the Fed’s stated desire to continue tightening policy, markets are reluctant to buy into the US Dollar due to concerns over US President Donald Trump’s ability to push through his flagship spending and tax reforms.
Later this evening the Fed is set to announce monetary policy for July, with no changes expected. The ‘Greenback’ could certainly rise if Chairwoman Janet Yellen strikes a hawkish tone, but the US Dollar could find itself on the back foot if the US central bank tones down talk of normalising policy.
Pound to Canadian Dollar Exchange Rate Flat
The Pound traded with volatility against the Canadian Dollar yesterday but neither currency was able to post any lasting gains.
The ‘Loonie’ remains close to its highest level in five months against Sterling, having become the world’s best performing major currency over the past two-and-a-half months. The prospect of further rate hikes from the Bank of Canada means that GBP/CAD could continue to trend lower over the next few weeks and months.
Pound to Australian Dollar Exchange Rate Briefly Touches 1-Week High
The Pound to Australian Dollar exchange rate briefly touched a one-week high yesterday but Sterling was unable to push ahead due to anxiety surrounding today’s second quarter UK GDP report.
Traders are primed for a relatively lowly quarterly expansion of 0.3%, which could soften Bank of England rate hike bets and subsequently weigh on demand for Sterling.
Pound to New Zealand Dollar Up on Dovish RBNZ Remarks
Sterling inched up slightly against the New Zealand Dollar yesterday, with demand for the ‘Kiwi’ damaged by dovish remarks from the Reserve Bank of New Zealand.
RBNZ assistant governor John McDermott commented that a weaker currency would help rebalance economic growth, which was interpreted as a hint that policy was not about to be tightened.
Data Released
GBP Gross Domestic Product (QoQ) (2Q A)
GBP Gross Domestic Product (YoY) (2Q A)
USD FOMC Rate Decision (Lower Bound) (Jul 26)
USD Federal Open Market Committee Rate Decision (Jul 26)