Eurozone Construction Output Falls
Sterling regained some of its yesterday’s losses against the Euro, but continued dropping against the US Dollar. The British currency seemed unable to fully recover from the major blow it suffered yesterday, when June’s inflation data was published, showing an unexpected decline. Mark Carney, the Bank of England’s (BoE) Governor, said that the “big picture” in inflation didn’t change.
According to data released by Eurostat, the Eurozone’s construction output in May was reduced by 0.7%, in comparison to April’s figure. Data also showed that construction output across the wider European Union (EU) fell by 1.1%. Despite the decline, the Eurozone’s construction output is 2.6% higher than exactly one year ago.
Pound Sterling – UK Markets
Today, Sterling fell by 0.15% against the US Dollar with the exchange rate set at $1.30. On the contrary, the Pound edged up to the Euro, with the exchange rate hovering around the €1.13 mark.
The British currency seemed to recover after suffering a blow yesterday on news that inflation fell to 2.6% in June from a 2.9% reading in May. Market analysts were surprised, since they expected inflation to remain stable, and became worried that the Bank of England (BoE) will halt any effort to raise its benchmark interest rate. The BoE’s Governor, Mark Carney, appeared calm saying that the “big picture” in inflation remains the same and attributed the decline to Sterling’s fall in value. “That’s what is pushing inflation up, and inflation will be above target for a period of time and figures are consistent with that,” Carney said in an interview on Sky News.
According to PricewaterhouseCoopers (PwC) UK Economic Outlook, Britain’s GDP growth is expected to drop to 1.5% in 2017 and to 1.4% in the following year. PwC’s economists note that uncertainty related to Brexit puts a strain on business investments as companies put expenditure plans on pause. The report indicates that consumer spending, which is considered an important driver for the British economy, is suffering from real wages shrinking and high inflation.
US Dollar – US Markets
The US Dollar strengthened against the Euro, recovering some of yesterday’s losses with the exchange rate set at €0.86. Later in the day, the number of building permits for new construction projects in June is expected to be announced by the US Census Bureau. The Building Permits statistic tends to cause volatility to the US currency.
A monthly index of homebuilder confidence in the single-family market fell by two points in July. Despite being still in a positive territory, this was the lowest reading on the National Association/Wells Fargo Housing Index since last November. According to the survey, that backs the result, homebuilders said that consumer interest in the new-home market remains strong, but they are becoming increasingly worried over rising material prices, such as lumber.
The failure of Donald Trump’s administration to replace the “Obamacare” continues to trouble investors and traders across the world. An ING report says that political setbacks, as they occurred in the last months, are starting to affect the US Dollar significantly. ING’s analysts suggest that “the White House will want to shift its attention to its tax reform agenda following the failure to repeal and replace Obamacare.”
Euro – European Markets
The Euro slumped against the US Dollar with the exchange rate set at $1.15. The spotlight is already on tomorrow’s European Central Bank (ECB) board meeting. Economists are waiting to see if the board’s statement will be in line with Mario Draghi’s hinting at the tightening of the ECB’s monetary policy and the gradual reduction of its stimulus programme.
A Bank of America Merrill Lynch (BAML) report says that “the ECB will toughen its language marginally, by removing the easing bias on QE, while insisting on the need for prudence and a persistent monetary stimulus. The market is pricing in the end of QE could be as early as June 2018.” Francois Villeroy, who is the head of the Bank of France and an ECB board member commented on the Eurozone economy, saying that the situation is improving, deflation risk has been removed, but stressed the need for an accommodative monetary policy.
Ewald Nowotny, also an ECB board member, argued against the use of digital currencies, such as Bitcoin, in an interview published in Austria. Nowotny said that “the Bitcoin lacks the one thing that makes a good currency, namely stability. It is an object of speculation, but the ECB would not prohibit Bitcoins. People should be aware of the risks.”
Other Currencies – Highlights
Sterling fell against the Australian Dollar, trading at 1.64 AUD. The Aussie performed even greater against the US Dollar, with the exchange rate reaching closer a 26-month high. According to a report by the Amplifying Global FX Capital, the July’s Reserve Bank of Australia (RBA) minutes acknowledged the boost in demand from increased government spending on infrastructure. The analysts note that RBA board members believe that infrastructure investment is expected to have significant positive spillovers to other parts of the economy.
Sterling dropped against the New Zealand Dollar, trading at 1.76 NZD. New Zealand has ranked 115th out of 152 countries for progressive tax policies that bridge the gap between the rich and the poor. This was the outcome of a survey made by Oxfam. The Commitment to Reducing Inequality (CRI) Index represents a new global ranking of governments based on social spending as well as labour and tax policies. Analysts at Oxfam commented that “we are keen to see how the government can respond, what are their tax policies and how can they make an effort to see if we can move up that CRI Index.”