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Daily Update: Pound Sterling (GBP) Durable before G20 and Data Releases

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GBP: Pound Sterling Strong before Tomorrow’s Data Dump

Yesterday’s UK services PMI presented the third underwhelming downtick in private sector figures for June. However, despite the hat-trick of negative figures the Pound only saw minor losses as it was buffeted by a struggling Euro.

There’s no significant UK data today, so markets are awaiting tomorrow’s substantial run of data releases. The total trade balance is due, as well as the manufacturing production, construction output and industrial production figures – all spread throughout the day.

Despite the recent spate of negative private sector figures, May’s construction, manufacturing and industrial production figures are all expected to have increased, something that will likely propel Sterling further. May’s total trade balance, however, is predicted to reduce from -£2,050 to -£2,500, and the NIESR GDP estimate is also likely to cause waves.

In addition to data, the G20 summit is due to start tomorrow and many question the possibility of a communique regarding North Korea, as the possibility of tensions escalating is enough to put many currencies on stand-by.

EUR: Diminished Rate Hike Hopes Continued to Weigh on the Euro

Dovish comments from the European Central Bank (ECB) have weighed on the Euro as of late, preventing it from capitalising on the recent weaknesses of the Pound.

ECB governing council member Benoit Coeure had a similar effect to ECB chief economist Peter Praet yesterday by announcing that the central bank had not been discussing changes to monetary policy. Whilst these comments contradict last week’s hawkish sentiment from ECB President Mario Draghi, they lent further credence to rumours that ECB policy will be left alone for the remainder of this year.

Germany had some positive data this morning as there was a reported rise in manufacturing orders. Factory orders rose 1% in May – negating April’s 2.2% decline and demonstrating that there’s still demand for goods from the Eurozone’s biggest economy. The Euro stabilised somewhat this morning as a result, but with the perceived dwindling likelihood of the ECB winding down quantitative easing, the GBP/EUR exchange rate has continue to gather speed.

USD: US Dollar Weakens after Mixed Fed Messages

Yesterday’s highly anticipated publication of the minutes from the Federal Open Market Committee’s meeting did not meet expectations.

Although the Fed did raise rates at the June meeting and express a willingness for another rate hike this year, various Fed policymakers were unimpressed, citing the slow in US inflation data as cause for concern.

The Fed stated:

‘Most participants viewed the recent softness in this price data as largely reflecting idiosyncratic factors…however, several participants expressed concern that progress…might have slowed and that the recent softness in inflation might persist.’

In addition, the Fed seemed divided on when exactly would be the best time to continue in the normalisation of monetary policy – leaving markets essentially very uncertain as to when the Fed will make its next move. The success of future data, particularly regarding inflation levels, will likely inform these future decisions, but in the meantime the US Dollar’s rally has steadied.

CAD: Canadian Dollar Falls against the Pound as Oil Prices Tumble

The Pound to Canadian Dollar exchange rate lifted from a two-and-a-half-month low yesterday as oil prices tumbled.

Comments from Russia, a major oil supplier, indicated that they were uninterested in increasingly significant production cuts (the means by which OPEC controls supply and therefore price). Understandably, the commodity-correlated Canadian Dollar took a tumble as a result, though it has since recovered on the back of the perceived likelihood of an interest rate hike next week.

AUD: Australian Dollar Continues to Stumble Despite Positive Trade Balance Figures

The Pound to Australian Dollar exchange rate traded relatively close yesterday, with the Pound successfully holding its ground, despite the four-month low UK service sector PMI.

This morning Australia received positive trade balance figures for May, coming in at A$2471m, over double the forecast of A$1100m and far higher than the previous figure of A$90m. Positive data, and accompanied by a bullish iron ore too, however, it all remains negated by the recent dovish announcement from the Reserve Bank of Australia.

NZD: Sterling Climbs against an Apprehensive New Zealand Dollar

The underwhelming UK private sector reports did not give Sterling much pause against the New Zealand Dollar; with the Pound quickly catching up on its recent gains.

The New Zealand Dollar itself is currently suffering after the drop in New Zealand dairy prices at the Global Dairy Trade fortnightly auction.

Some market economists also suggest that the ‘Kiwi’ is struggling as a result of investor nerves in the wake of North Korea’s recent missile test. With the G20 summit coming up it is likely that some form of communiques will be released – something that could hurt the volatile ‘Kiwi’.

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