UK
Tuesday was a relatively quiet day for UK data, however UK Consumer Price data for May came in at -0.1% m/m versus expectations of a reading of 0.1%. The pound saw hefty declines after inflation undershot expectations and slowed to its lowest level in more than two years, boosting expectations that the central bank would engage in more monetary easing. The consumer price index rose only 2.8% on the year in May against consensus views of a 3% rise. Sterling hit the day’s low of 1.5616 against the dollar after a sharp fall.
The Bank of England said Tuesday it will offer banks £5bn ($7.9bn) in an auction today, in what will be the first test of UK lenders’ appetite for new emergency funding. GBPUSD jumped to a 1 month high of 1.5756 upon release of this news yesterday afternoon.
GBPEUR opened yesterday at the high of the day 1.2447 and dropped on the inflation data release to trade at the low of the session 1.2377. With the rebound from resistance at 1.2465 yesterday we now expect a test of support at 1.2282 in the coming sessions. Currently the pair is trading around 1.2405.
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WORLDWIDE
The ZEW Indicator of Economic Sentiment for Germany decreased by 27.7 points to -16.9 in June, the strongest decline since October 1998. The score was also much worse than economists’ forecast of 23. The report noted that the worsening of the situation in the Spanish banking sector and the insecurity about the outcome of the Greek general election are likely to have contributed to the sharp decline of the indicator.
Now that the Greek elections are out of the way, the centre of the euro debt crisis will focus back again on Spain. The Spanish banking sector’s fortunes continue to deteriorate as a result of weak loan performance, where metrics have weakened to levels not seen since 1994. 10 year government bond yields breached the 7% barrier yesterday, the level that prompted the governments of Greece, Portugal and Ireland to seek bailouts.
Scotiabank sees that a possible rate cut from the ECB might be on the way. President Draghi had stated that the decision to hold rates had been one made by ‘consensus’, indicating that some members of the governing council had already argued for rate cuts. This new development increases the chances of a rate cut at the next ECB meeting on July 5th.
Spain’s woes worsened on Tuesday as its borrowing costs surged at a debt auction amid fears that the country loses access to financial markets, which could lead it to seek an international bailout. Spain is set to face a tougher challenge tomorrow , when it plans to sell as much as €2bn of bonds maturing in April 2014, July 2015 and July 2017.
The International Monetary Fund added $456 billion to its war chest as 12 more nations, including the BRICS, pledged new money to protect the global economy from the impact of the Eurozone debt crisis at the on-going G20 meeting in Los Cabos, Mexico. China led the nations in boosting the firewall with a contribution of $43bn. India, Russia and Brazil agreed to provide $10bn each. Another BRICS member South Africa offered $2bn, according to IMF whilst G20 host Mexico also offered $10bn.
Greece’s pro-bailout New Democracy Party, which won the second elections, is close to form a coalition government on the second day of talks yesterday. However, there were reports that the new government may urge its creditors to renegotiate the bailout deal.
US housing starts dipped in May, nearly reversing a stronger than initially reported April rebound, according to figures released Tuesday by the Commerce Department. The Commerce Department put the number of privately owned housing starts at a seasonally adjusted annual rate of 708,000 for May.
Following the release of the US housing starts and building permits data for May, the dollar was little changed against its major opponents. As of 1331pm, the dollar was trading at 1.5672 against the pound, 1.2622 against the euro.
In an indication of future construction, the number of new housing permits grew by 7.9% to annualized level of 780,000 in May. That was well above economists forecast for 730,000 new permits and the highest monthly level since September 2008.
Canadian Wholesale Sales rose more than an expected 0.2% to show a reading of 1.5% in April. Following the release of the data for April, the Canadian dollar edged higher against its major rivals. As of 1332pm, the Canadian dollar was trading at 1.2880 against the euro, 1.0208 versus the dollar and 1.5988 against the pound. The high of the day (against sterling) reached 1.6053.
The Swiss franc gained against most of its major opponents yesterday, hitting a low of 1.4864 against sterling after a high of 1.4961 during the trading day.
The yen gained ground across the board this morning in Asia trading after data showing that Japan’s trade deficit widened in the month of May, while the minutes of the Bank of Japan showed that a few members said more easing should not be ruled out. Risk-aversion mood ahead of the conclusion of crucial Fed meeting also prompted traders to seek safe-haven yen.
Annual German PPI increased 2.1% in May, following a 2.4% rise the previous month, according to data released on Wednesday by Destatis. Analysts expected 2.3% growth. As we stand, EURUSD is trading at 1.2684
