Pound benefits against the perceived safe havens.
• EU summit comes good – direct bank funding saviour for France and Italy.
• Safe havens lose out – US Dollar taking losses.
• Risk-correlated currencies improve – NZD and AUD on the up.
• Canadian Dollar awaits GDP figures – summit support yet to kick in.
Following on from the early morning weak Nationwide Housing Prices figures, Sterling was treated to a full basket of potentially damaging soft ecostats. The UK Current Account posted a deficit of -£11.2 Billion in the first quarter, Total Business Investment increased by only 1.9%, and most significantly, the Office for National Statistics confirmed that the British economy contracted by 0.3% between January and March this year.
This morning has seen the Pound benefit against the perceived safe havens, but lose ground to the risk-correlated assets due to the positive developments from the EU summit in Brussels.
The Euro suffered against the majority of its major peers yesterday following the news that the German Unemployment Rate rose to 6.8%, most notably losing out on one cent to the US Dollar, falling from 1.2500 to 1.2400. The single currency was not helped by a report showing that Eurozone Economic Sentiment has fallen to its lowest level since October 2009 at 89.6. The misery was then compounded when Eurozone Consumer Confidence fell to -19.8, Eurozone Business Climate diminished to -0.94, Eurozone Industrial Confidence lessened to -12.7 and Eurozone Services Sentiment dropped to -7.4.
The Euro’s losses were not as pronounced as they could have been as the majority of investors were preoccupied with the outcome of the EU summit in Brussels.
Over the past two years there have been 18 crisis summits, and on 18 occasions markets have rallied in anticipation of some kind of miracle fix to the vast problems which have engulfed the Eurozone… needless to say that on 18 occasions investors have been disappointed with the results which on the most part have lacked conviction.
However, this time out markets did not rally in advance and lots of financial speakers had commented beforehand suggesting that a cohesive solution would not be found. They were proved wrong though and the summit provided three major developments for the Eurozone. Direct bank access to funds, plans to form a banking committee and bondholder seniority rights.
The banking committee will help to stabilize financial markets and bondholder seniority will put creditors at the front of the queue in terms of payment in the event of a default on their investment. The most encouraging development is that of direct bank funding, which will allow distressed banks to access funds directly from the EFSF and ESM Eurozone stability funds at low interest rates. By separating bank funding from sovereign debt, the revelation will allow the struggling banking sectors of Italy and Spain to recapitalise without the burden of unsustainable interest rates.
The Euro improved by a cent-and-a-half against the US Dollar and one cent against the Pound immediately following the announcement in the early hours of the morning.
Prospects for the US Dollar took a turn for the better yesterday as it was announced that Gross Domestic Product would not be adjusted from the annualized figure of 1.9%. However it was the Core Personal Consumption Expenditure index, which really impressed, rising at the fastest pace in a year from 2.1% to 2.3%. With the CPCE index – which is used by the Fed to calculate US inflation – remaining solid, it will be difficult for the Federal Open Market Committee to justify another round of quantitative easing. This circumstance should benefit the ‘Buck’.
Following the developments in Brussels, and the moderate swing towards risk-on trading, the Pound managed to post a one cent gain against the US Dollar in early morning trading.
The Canadian Dollar bridges the gap between the high-risk, high-yield currencies, and the lower-risk lower-yielding safe havens. Subsequently the encouragement that certain other currencies have found from the crisis summit has eluded the ‘Loonie’. Gross Domestic Product figures for April are released later on today and if they improve by the 0.1% that they are expected to, they could kick-start a CAD rally.
The Pound is trading one cent lower against the Australian Dollar as markets take the opportunity offered to them by the EU summit to take on riskier assets. The ‘Aussie’ was also helped by news that Private Sector Credit improved by 0.5% in May.
New Zealand Dollar
Annualized M3 Money Supply slowed to 6.1% in May from 6.2% in April, but the New Zealand Dollar was able to benefit strongly from the outcome of the talks in Brussels which have brought about an unexpected optimism in the marketplace.
Data Released Today
June 29th 01:30 AUD Private Sector Credit (MoM) (May) 0.5%
June 29th 06:00 EUR German Retail Sales (YoY) (May) 1.0%
June 29th 09:00 EUR Eurozone Consumer Price Index (YoY) (June) 2.4%
June 29th 09:30 UK BoE Governor King’s Speech
June 29th 12:30 CAD Gross Domestic Product (MoM) (April) 0.2%
June 29th 12:30 US Personal Income (MoM) (May) -0.2%
June 29th 13:55 US Reuters/Michigan Consumer Sentiment Index (June) 74.1
- Pound to Euro, US Dollar exchange rate: Bank of England Governor Mervyn King warned that the UK economic outlook is getting worse
- Pound to Euro, US Dollar exchange rate: The Pound has resembled the English football team
- Pound to Euro, US Dollar exchange rate: Retail sales increased by the most in one and a half years
- Pound to Euro, US Dollar exchange rate: Sterling was boosted by the news that UK Retail Sales rebounded from April’s poor figure of -2.4%
- The pound has maintained its 15-month high against the Euro exchange rate