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%

Currency

Sterling was boosted by the news that UK Retail Sales rebounded from April's poor figure of -2.4%Sterling was boosted by the news that UK Retail Sales rebounded from April’s poor figure of -2.4%.

German IFO falls to lowest in 2 years – Euro takes minor losses.
Moody’s cut the credit rating of 15 major banks – market reaction muted.
Project Twist continues in the US – not enough stimuli to start a risk-on rally.
Antonis Samaras becomes PM of Greece – suffers detached retina.
BoE policy members discuss further QE – Sterling held back as markets price-in possibility.

Sterling

Last week Sterling was boosted by the news that UK Retail Sales rebounded from April’s poor figure of -2.4% to a more respectable 1.4% growth in May. It seems that with 60% more hours of sunshine during May, Brits found it a lot more justifiable to spend their money on new clothes, fancy shoes, and meat for barbecues. The figure is expected to increase as the year goes on, but with the least sunshine since records began don’t be surprised if June’s result is not so inspiring.

Talking of the inspirational, Moody’s credit rating agency announced last Thursday that they have downgraded three of Britain’s biggest banks. The move has inspired severe bitterness in the mouths of the bank’s senior staff, as they will now have to pay more for borrowing and offer additional collateral to existing positions.

The spectre of further quantitative easing, inspired by June’s MPC minutes report which detailed a shift from 1 to 4 members advocating more asset purchases, has ensured that the Pound has remained in close contact to the majority of its major currency peers. BoE policymaker David Miles has spoken out to the press to suggest that at least £50 billion in additional funds is needed to kick-start the British economy. This is unsurprising seeing as Miles voted in favour of more QE last time out, however his counterpart Martin Weale who voted against further stimulus, has since stated that further monetary injections could be applied without putting the inflation target at risk. This suggests that Weale may well change his mind at the next meeting and this would be enough to tip the vote towards a higher asset purchasing target.

Euro

The Euro took a small hit on Friday morning as the German IFO Business Climate Index dropped to its lowest level in two years at 105.3. Germany has escaped comparatively unscathed from the Eurozone debt storm thus far, but no economy is immune to the global chill winds emanating from Southern Europe as this dataset makes apparent.

For the rest of the day European markets were preoccupied as they awaited the outcome of a meeting between the ‘gang of four’, comprising of Italian PM Mario Monti, German Chancellor Angela Merkel, French President Francois Hollande, and Spanish Prime Minister Mariano Rajoy. Many outside of Germany had hoped for the anti-austerity Mediterranean leaders to outnumber and overpower Merkel in their battle for growth orientated programmes and the introduction of Eurobonds. However the plan for a €130 billion growth fund, that was the outcome of the meeting, was viewed by many as uninspiring and suspiciously similar to Hollande’s existing €130 billion growth pact.

In other news both the new Greek Prime Minister, Antonis Samaras, and the new Greek Finance Minister, Vassilis Rapanos, were taken to hospital on Friday. The PM is said to have suffered from a detached retina after taking a punch from Golden Dawn leader Nikolaos Mihaloliakos whilst the finmin reportedly feinted and collapsed after looking through the dreadful Greek balance books. Although the causes are unverified the ailments are depressingly accurate and neither of the two politicians will be attending this week’s key EU summit as a result of their injuries.

Any Euro strength following last week’s election results in Greece was betrayed by a fifth month of decline in Eurozone Manufacturing PMI figures, and with German business morale at the lowest level in 2 years the Euro is currently trading half a cent lower than Friday’s closing levels against the Pound.

09:23 GMT Pound to Euro interbank exchange rate – 1.2445

US Dollar

Earlier last week the US Dollar escaped from the potential damage of more QE or a rate cut, but the threat of either remains latent in the near future. The Greenback, however did not escape completely unscathed as Fed chairman Ben Bernanke announced a $267 billion extension to his interestingly named ‘Project Twist’. The scheme does not feature a white mat with multi-coloured dots, a spinner and an awkward looking family, but it does involve the selling of short term (under 3 year) treasury bonds in order to finance the purchase of longer dated debt (6-30 year). The aim of Project Twist is to drive down the long-term interest rate and subsequently encourage borrowing in the US.

Market reaction to the decision has been fairly muted and risk appetite has not picked up as strongly as some had anticipated. The US Dollar benefitted from a turnaround in the Leading Indicators figure from -0.1% to 0.3% growth, and a better than expected Housing Price Index of 0.8% growth in April. Manufacturing PMI dropped 0.1 opposed to the predicted 0.9 increase, but considering the figure is still comfortably above 50 at 52.9, and well above the contracting Eurozone figures, there is not too much cause for concern for Ben, Barney, and co. (Ben Bernanke).

The concerted switch to risk-off trading has allowed the US Dollar to appreciate by half a cent against the Pound over the weekend.

09:23 GMT Pound to US Dollar interbank exchange rate – 1.5554

Australian Dollar

The Aussie Dollar has benefitted in recent times from an improved rate outlook: meaning that the Reserve Bank of Australia is less likely to impose a rate cut in the near future. However, slowdowns in the global economy have sent risk sensitive assets into hiding and as such the Aussie Dollar has found it hard to post any significant gains.

09:23 GMT Pound to Aussie Dollar interbank exchange rate – 1.5531

New Zealand Dollar

In a climate that was expectant, but did not receive the sufficient stimulus to bring about a bout of risk-on trading, the Kiwi has benefitted from a jump in GDP that has surpassed that of any other result since 2007. The quarter on quarter figure increased by 1.1% and the year on year stat printed 2.4% higher than this time in 2011. Credit card spending also increased by 0.4% in May suggesting that the New Zealand economy could be on the up.

09:23 GMT Pound to New Zealand Dollar interbank exchange rate – 1.9756

Data Released Today

14:00 US New Homes Sales (MoM) (May)

14:30 US Dallas Fed Manufacturing Business Index (June)

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