Greece on the Slippery Slope
The uncertainty surrounding Greece’s future in the Euro bloc continues to grapple investors, with the Euro suffering losses against the majors. Greece is facing a political and financial crisis after it announced that it will hold a referendum this weekend to decide on whether to accept the rescue funding offered by its international creditors.
On the macroeconomic front, data released this morning has revealed that Britain’s mortgage approvals fell unexpectedly for May and consumer credit grew at a slower than anticipated pace for the same month. Though developments in Greece are likely to influence market sentiment going forward, today’s Euro zone indices, German consumer price inflation and US pending home sales data will also attract modest market attention.
Pound Sterling – UK Markets
Bank of England figures released this morning have shown that the number of home loan approvals dropped unexpectedly for May, contradicting recent signs of improvement in housing market activity. Data revealed that tighter rules on mortgage lending and an increase in prices due to property supply constraints have weakened demand in the housing market. Additionally, data showed that consumer credit grew at a slower than expected pace for the second straight month in May. Meanwhile, Sterling has recovered some of its losses against the US Dollar, after the Pound dipped below the 1.57 mark earlier this morning amid abroad-based demand for the US Dollar. The Pound also moved higher against the common currency amid heightened fears that Greece might exit the Euro zone. Going forward this week, the notable economic releases in the UK include the final gross domestic product estimate for the first three months of the year and the latest reading on the nation's manufacturing sector activity.
The Pound traded in a narrow range against both the US Dollar and the Euro on Friday amid the absence of significant macro indicators.
US Dollar – US Markets
The US Dollar is trading on a firmer footing against the Euro and the Pound this morning following unproductive Greek debt negotiations over the weekend. Looking ahead to the US economic releases, today’s update on pending home sales will shed further light on the strength of the housing market. Last week’s housing market releases including sales of previously owned homes and newly built houses posted better than expected numbers for May, while the latest US mortgage applications data also instilling confidence among investors. Market participants will now track today’s housing data to ascertain whether it follows a similar trend and adds to confidence that the residential market has pulled itself out from the winter slump. Also of particular interest will be the Dallas Fed manufacturing activity data scheduled later today, with markets anticipating some improvement for June.
On Friday, the final reading of the Reuters/Michigan consumer sentiment index jumped to its highest level since January 2015, though it did little to help greenback post gains against its key peers.
Euro – European Markets
The Euro has plunged against the major currencies this morning after the cash strapped nation failed to clinch a deal with its international creditors over the weekend, thereby raising prospects of Greece defaulting on its IMF loan payment this week. In addition, the ECB has refused to provide additional support to Greek banks after the Greek Prime Minister, Alexis Tsipras, surprisingly called for a referendum on 5 July 2015 to decide on whether to accept creditors’ demand for austerity in exchange for aid. Market sentiment in the Euro worsened further after Greece closed its banks and imposed capital controls. However, the common currency has recovered some of its early session losses against the majors, in response to the EU Economics Commissioner, Pierre Moscovici comments earlier today, that there is still scope of a deal and further negotiations.
In economic news, the release of Euro zone sentiment indicators and consumer price inflation numbers in Germany later in the day will draw some market attention.
Other Currencies – Highlights
The Japanese Yen is trading higher against the greenback, with the US Dollar – Japanese Yen currency pair trading close to the 123 mark, amid risk-off sentiment as Greek debt concerns continue to mount. Additionally, few positive economic releases in Japan released earlier today provided some support to the domestic currency. Retail sales in Japan rose higher than market estimates for the third straight month in May, amid signs that consumers have stepped up their consumption after an increase in national sales tax last year had dampened spending. The data was consistent with last week’s household spending report for May which posted its first positive reading since March last year. However, the positive news was offset by a sharp decline in today’s preliminary industrial production numbers for May, reflecting slower recovery in the world’s third largest economy for the current quarter.
With no further domestic economic releases to influence trading in the pair, traders will eye pending home sales and a regional index of manufacturing activity in the US due later today for further direction.