by Adam Solomon
Sterling / Euro and US Dollar
The Pound declined to the lowest level against the U.S Dollar exchange rate in two months, while the UK currency also came under renewed selling pressure versus the majority of the 16 most actively traded currencies. A report from the Office of National Statistics showed that UK retail sales dropped more-than-expected in May, led by higher fuel costs and ongoing concerns about the labour market.
Consumer spending rose in April, which coincided with extra bank holidays and the Royal wedding. However, sales fell 1.4% in May, wiping out the 1.1% gain the previous month. The Pound declined and bonds rose after the report, as UK consumers are being squeezed from rising inflation outpacing wage growth, while consumer sentiment is being undermined by government spending cuts.
The Euro exchange rate traded at a fresh two month low against the Dollar on concern that the sovereign debt crisis is worsening. The political deadlock surrounding a fresh rescue package for Greece has caused a lot of uncertainty in the Euro-zone and a diversification away from the Euro. There have also been reports this morning that Germany has blocked a rescue package for July and threatened to push it back to September.
The possible delay has weakened the Euro further and a move under 1.40 against the Dollar appears likely. The U.S currency gained along with the Yen and Swiss Franc and is benefiting from the decline in risk appetite amid concern that Greece will default on its debt if a resolution is not found. Euro buyers are well placed to take advantage of the current level, particularly considering the ECB still plans to raise interest rates in the Euro-zone in July. Dollar sellers can also take advantage of the best rate in more than two months or least consider a stop order to protect against a sudden reversal.
U.S 13:30 – Current Account (Q1)
U.S 13:30 – Housing Starts (May)
U.S 13:30 – Initial Jobless Claims (w/e 11th June)
U.S 15:00 – Philly Fed Business Survey (June)