GBP: Pound Sterling Falls after UK Trade and Industry Data Disappoints
Sterling stumbled this morning in the face of another run of disappointing data prints.
The total UK trade deficit widened by £1bn between April and May (far more than expected) as a result of a surge in imports – notably the importation of transport equipment, electrical machinery and oil from countries that are not within the EU.
UK industrial production, manufacturing production and construction output all came in lower than expected, with some quite significantly lower than previously. This data – which followed a previous wave of negative PMI prints this week – indicated that the UK economy is struggling, a fact that might prevent the Bank of England’s Monetary Policy Committee voting for adjustments to monetary policy.
Whilst the Pound had previously remained somewhat stubborn in the face of negative data prints, its gains were quickly eroded this morning.
EUR: Euro Strengthens after ECB Minutes & Japan Free Trade Deal
The Pound to Euro exchange rate dropped to a 10-day low this morning as demand for the single currency jumped.
Whilst the Euro had traded relatively flat for most of the week, the latest minutes from the European Central Bank (ECB) drove demand back, as their pledge to extend stimulus measures was officially dropped from the minutes. This move by the ECB was deemed hawkish, as it illustrated that policymakers were progressing towards the removal of stimulus, something that effectively expelled the possibility of further rate cuts.
It should be noted, however, that the ECB minutes also demonstrated anxiety about how markets could overreact to the removal of stimulus, and with inflation below target, no policy was altered at this stage.
Another driver for the single currency was yesterday’s announcement of the Japan – European Union Free Trade Deal – a broad agreement that lowers the barriers on almost all goods traded between the two nations. Japan is currently the third-largest economy in the world and their demand for dairy based goods is increasing – something that the European Union intends to capitalise on.
USD: US Dollar Strengthens before NFP Release
Today’s run of disappointing UK data has modestly buffeted the US Dollar, which was previously suffering following yesterday’s mixed bag of US figures.
Whilst the ISM non-manufacturing composite – the headline index for American services activity – did jump from 56.9 to 57.4 in June, the ADP employment change report demonstrated a slump in job gains from 230,000 to 158,000, lower than expectations of 188,000.
Regardless, the US Dollar has shrugged off yesterday’s data, for the most part, taking advantage of a significantly weakened Sterling today as traders await the significant June non-farm payrolls (NFP) figure.
Current estimations are that the NFP figure will have surged for June from 138k to the expected 178k. If this should occur, ‘Cable’ might continue to be put under pressure for the remainder of this week’s trading session, as bets on the Federal Reserve raising interest rates may tick higher.
CAD: Canadian Dollar Rate Hike Rally Steadies, Employment Figures due Later Today
The Canadian Dollar continues to ride the wave of interest rate hike hype, but it slowed this morning as crude oil prices slid by almost 3%.
Bank of Canada Governor Stephen Poloz has made it clear that the two interest rate cuts since 2015 have completed their purpose – paving the way for hawkish speculation and indeed buffeting the commodity-correlated ‘Loonie’ somewhat, as it is generally extremely responsive to movements in the oil market.
The BoC decision will be announced next week, but Canada is also due to publish significant data today in the form of employment/unemployment figures. How influential these figures will be remains to be seen, especially in the wake of hawkish excitement and falling oil prices.
AUD: Australian Dollar Recovers as Construction Continues to Expand
Whilst the Australian Dollar has been struggling to free itself from the malicious clutches of the recent dovish Reserve Bank of Australia decision, today it finally recovered somewhat following the release of the AIG construction data.
Australia’s construction sector expanded in June, although at a slightly slower pace. The performance of construction score printed at 56.0, down from May’s 56.7, but still comfortably above the significant 50 line that divides expansion and contraction.
The Pound has pared some gains against the ‘Aussie’ Dollar in response, predominantly because of the recent spate of negative UK data prints.
On Thursday the ‘Aussie’ Dollar seemed somewhat disinterested with Australia’s positive trade balance figures – it is possible that the rally is, in part, a delayed response.
NZD: Disappointing UK Data Causes the GBP/NZD Exchange Rate to Flounder
The Pound to New Zealand Dollar exchange rate suffered this morning after another run of disappointing UK data releases.
The ‘Kiwi’ itself, however, is somewhat bearish, having only dipped slightly this morning as the G20 summit gets into full swing and investors await the outcome of discussions regarding North Korea.
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