Bank of England Governor Mervyn King warned that the UK economic outlook is getting worse.
• BoE Governor pessimistic on UK economy – QE already priced into Sterling.
• Cyprus seeks financial assistance – Euro takes small knock.
• Merkel reportedly rules out Eurobonds – Hurtful to Euro confidence.
• US Consumer Confidence falls – Dollar deteriorates slightly.
• EU summit expectations low – Damaging for AUD, CAD, and NZD.
Yesterday Bank of England Governor Mervyn King warned that the UK economic outlook is getting worse due to deterioration in the global economy. King discussed the knock-on effects of the Eurozone debt crisis in Asia and other emerging markets as strong concerns of his. He also mentioned that his colleagues in the United States are more anxious now than they were at the start of 2012 as EU leaders have failed to bring about any substantial improvements.
Sterling was not adversely affected by the Governor’s pessimism as his speech offered nothing that investors had not heard before. The threat of more quantitative easing has already been priced-in to the market as a consequence of last week’s BoE minutes report. Making gains of half a cent against the US Dollar, New Zealand Dollar and the Euro, yesterday was a relatively positive day for the Pound.
The Euro dropped half a cent to the Pound yesterday following the news that Cyprus has become the fifth European country to seek economic assistance from the EU. The proposed €10 billion bailout package would account for over half the size of the Cypriot economy and would represent over €10,000 per member of the population.
The Euro’s ego was also damaged as its most robust economy was downgraded from AA- to A+. Egan-Jones cited huge loans that cannot be reclaimed from southern Europe as their main cause for concern for Germany. However in recent times even the big three ratings agencies have been snubbed by investors, so when a smaller one such as Egan-Jones got involved the market reaction was predictably muted.
Reports have emerged suggesting that German Chancellor Angela Merkel has ruled out the prospect of joint Eurobonds for “as long as [she] lives” at a closed meeting with coalition partners. The statement, if true, is very threatening to Euro confidence and could undermine the prospect of any progress being made at tomorrow’s crisis summit in Brussels.
Released at midday, June’s German Consumer Price Index is expected to fall from 1.9% to 1.8%. If analysts’ expectations prove accurate then the Euro could come under more selling pressure as the prospect of an ECB rate would weigh on the single currency.
US Consumer Confidence in June dropped by more-than-expected from 64.4 to 62.0. The fourth consecutive month of decline came as concerns regarding jobs and the overall economy outweighed relief at falling fuel prices and slight improvements in the housing market. The weak figure combined with a fall from 4 to -3 in the Richmond Fed Manufacturing Index caused the US Dollar to give up its earlier gains against the Pound.
Sterling improved against the Buck in early morning trading before retreating back down following Mervyn King’s downbeat inflation speech. However, upon the release of the declining Consumer Confidence and Richmond Fed figures Sterling was able to rise back up and secure a half-cent daily gain against the Dollar.
Later today US Durable Goods Orders are expected to increase by 0.5% from stagnation which could give the Buck a boost.
A quiet day yesterday on the Canadian ecostat front ensured that the ‘Loonie’ remained within 10 pips to its opening levels against the Pound. With market sentiment and Eurozone developments continuing to be the main drivers behind the Canadian Dollar, it is unlikely that we will see CAD make any great leaps in the currency markets unless a strong conclusion is formed from the EU crisis summit in Brussels.
As is the case with the majority of the commodity currencies at the moment, the Aussie Dollar is relying on the EU summit to provide a confidence boost for investors and encourage global trade to pick up. As matters stand, hopes of a significant progression at the meeting are low and should this prove to be the case then it could weigh on the Australian Dollar as the Australian export industry declines.
New Zealand Dollar
Yesterday the New Zealand Dollar shed half a cent to the Pound as a combination of global risk-aversion and a widening Trade Balance hurt the Kiwi. The year-to-date trade deficit widened from -NZ$557 million to –NZ$805 million in May, marking a second consecutive month of decline and the second largest shortfall since November 2009.
Data Released Today
08:30 UK BBA Loans for House Purchases (May)
12:00 UK German Consumer Price Index (YoY) (June)
12:30 US Durable Goods Orders (May)
- The Pound rises as the governor of the Bank of England, Mervyn King, suggests that UK interest rates may need t continue rising
- The Pound advances following comments from BoE governor Mervyn King who reiterated concerns over rising inflationary pressures
- The Pound fails to rally against the majors after the BoE Governor, Mervyn King, indicates that the Bank has finished cutting interest rates
- New Zealand Dollar Foreign Currency Exchange Rate Forecast – Worse than expected contraction in the UK economy
- Canadian Dollar Foreign Currency Exchange Rate Forecast – Revised estimate of fourth quarter GDP showed a worse than expected contraction…