The Pound has lost ground to a basket of major currencies.
• Pound to Euro exchange rate slows – relaxes from 3.5-yr high.
• IMF pledge support to Greece – minor Euro / Sterling gains.
• US Dollar on the up – risk sentiment down.
• Commodities continue trend against Sterling – losing out to other havens.
The Pound has lost ground to a basket of major currencies at the start of the week, losing around 1 cent to the US Dollar, 0.8 cents to the Euro, 0.5 cents to the Australian Dollar, 0.4 cents to the New Zealand Dollar, and 0.2 cents to the Canadian Dollar. The downward Sterling movement is not surprising, however, as the Pound’s recent strong performances have belied the UK economy’s many flaws.
With tomorrow’s second quarter GDP reports expected to show a third consecutive period of contraction, UK PMI data stuttering, and an austerity drive that is harming growth prospects, the UK economy is far from joie de vivre. And with this in mind it is prudent to consider whether markets may look to punish Sterling further. But on the other hand, with risk sentiment dwindling, there is always the chance of the Pound appreciating on safe haven flows.
The Euro posted some half-decent daily gains against the Pound yesterday as the IMF stepped in to relieve some pressure from Greece. Over the past few days Greek exit fears have re-emerged – as if Eurozone leaders didn’t have enough to worry about with Spain appearing to be collapsing capitulary by capitulary – as reports from German newspaper Der Spiegel had suggested that the IMF had told the EU that it is “no longer willing to provide additional funds for Greece help.”
German Economy Minister Philipp Rosler gave the melting pot a little stir by stating that he was sceptical about Greece’s progress and added: “What is clear: if Greece doesn’t fulfil those conditions, then there can be no more payments.” Rather than decry the possibility of a Grexit, Rosler took a more brazen approach: “for many experts…a Greek exit from the Eurozone has long since lost its terror.”
The German Economy Minister’s abrasive sentiments did not go down well everywhere and Paul Donovan of UBS responded by throwing Rosler’s better sense of judgement into question: “If policy makers have lost a sense of terror, it seems likely they have lost their understanding of economic reality.”
Cognisant of the self-fulfilling affect that Grexit fears can have on markets, the IMF stepped in yesterday afternoon to confirm that “Greece’s economic program…is supported by IMF financial assistance.” The wording of the statement suggested that their had been some snags – no smoke without fire – but that IMF support would be unrelenting. The Euro managed to claw back around 0.8 cents against the Pound as markets readjusted following Friday’s frantic flight-to-safety flows.
The US Dollar has begun the week with a bullish approach as heightened Eurozone fears and tumbling risk sentiment allowed the world’s reserve currency to perform with relative vigour. The Pound lost out on around 1 cent to the US Dollar yesterday as the pair continued the concerted reversal from last week’s 4-week high.
The US Chicago Fed National Activity Index declined by -0.15 in June, but the meagre contraction was unable to hold any influence on the crisis-focussed market.
The Canadian Dollar improved by a modest 0.2 cents against the Pound yesterday as the investment currency benefitted from its domestic strength and higher yields. GBP/CAD could possibly fall a little further later today if the Canadian Retail Sales print matches analysts’ expectations of a rebound from -0.5% contraction to 0.5% growth in May.
Sterling slipped against the Australian Dollar at the beginning of this week as annualised Australian Producer Prices rose by 1.1% in the second quarter. However the half-cent GBP/AUD decline was more part of a longer-term downward trend, that has persisted to drag on the Pound since May 23rd’s high, than a direct result of the Producer Price Index figures.
New Zealand Dollar
The New Zealand Dollar faced a struggle against the majority of major currencies yesterday as risk appetite cooled in the aftermath of the negative developments from Spain. Sentiment was also knocked as Moody’s lowered the outlook for Germany, Luxembourg and Holland from stable to negative. Surprisingly though, the ‘Kiwi’ still managed to post mild gains against the Pound as markets await the UK Q2 GDP figures.
Data Released Today
July 24th 08:00 EUR Eurozone Manufacturing PMI (July) 45.2
Juy 24th 08:00 EUR Eurozone Services PMI (JulY) 47.1
July 24th 12:30 CAD Retail Sales (MoM) (May) 0.5%
July 24th 14:00 US House Price Index (MoM) (May) 0.5%
- The Pound lost ground against the Euro yesterday
- The Pound weakened 0.3% against the Euro and also lost ground versus the U.S Dollar
- Daily Foreign Exchange Rate Forecast – the Pound declined to a seven week low against the Euro and the UK currency also lost ground versus the majority of the 16 most actively traded currencies
- Foreign Exchange Daily Insight – Sterling rallies against a basket of Major currencies
- Daily Foreign Exchange Rate Forecast – UK currency lost ground versus the majority of the 16 most actively traded currencies