In the absence of top tier data the UK financial services sector held it’s breath in anticipation of Bob Diamond, former CEO of Barclays and only witness to the cross party Treasury Select Committee, speaking on rate libor rate fixing and ethical impropriety across the banking sector.US markets were closed yesterday for Independence Day. Having opened the UK session at 1.5681, by the close of the European market GBPUSD had lost over 0.5%, trading at 1.5587 by 16:30. In pre-market trading this morning GBP had pushed back up above 1.56 though.
UK Services PMI did not match expectations, falling to an eight month low. Figures of 51.3 missed the forecasted 52.9 and show that the broader economic outlook of purchasing managers is dimmer than the 53.3 posted in June.
All eyes are now trained on the Bank of England and the impact of the MPC’s rate decision today. The committee is expected to increase stimulus to the economy by £50 billion, but many commentators have suggested this has been priced into the value of the pound already.
GBPEUR traded within a very narrow range yesterday. The pound reached a peak of 1.2460. EUR only managed to achieve 1.2415 at approximately 13:00 despite month on month retails sales for the Eurozone beating expectations and returning a 0.6% increase.
Industry analysts and banks, including RBS, broadly agree that the ECB is likely to “deliver, with a 25 basis point cut”. Although a cut will not surprise the markets USD saw a sustained rally against EUR moving from a price of 1.26 at 07:00 to end the day at 1.2508.
Germany’s Finance Minister delighted in stating that their robustness coupled with near full employment means Europe’s largest economy should achieve a balanced budget.
Ireland intends to test market confidence tomorrow by engaging in its first bond sale in more than 18 months. The country’s debt office aims to sell 500 million euros of three month T-bills.
Over the course of this morning both France and Spain are conducting auctions of 10yr bonds; this should mean today will see a wider trading range for GBP/EUR than yesterday.
AUD continued to gain in value against the pound and the euro. The effects of the expected QE and rate cuts in the UK and Europe have been compounded by the RBA holding their own rates and an increase in Australia’s retail sales. EURAUD reached a session low of 1.2169 and GBP/AUD bottomed at 1.5145.
Australia’s trade balance posted -0.29B. Expectations were for a -0.51B. These figures, showing that Australia imported more than it exported, saw a slight relaxation in AUD’s strength in Asian trading.
The CEO of Singapore’s DBS Group Holdings says that he expects western central banks to ease policy further in the near term, which will result in increased volatility in Asia. Piysuh Gupta expects further easing in the US and from the ECB to ‘play havoc’ with currency and interest rates.