Sterling Slumps to a Six-day Low
Today, the Pound is at its lowest level in six days. Sterling slid closer to the $1.29 mark when IHS Markit published its UK construction PMI for June, which came below market expectations. The report showed that construction activity in the UK slowed down, after hitting a 17-month high in May. The Bank of England (BoE) told lenders to prove, until September, that they can protect themselves against consumer credit risks. The BoE’s Prudential Regulatory Authority (PRA) warned that the consumer credit market has deteriorated because of increased lending in higher-risk segments.
The US is celebrating its Independence Day, but that didn’t stop the US Dollar from strengthening on news that factory activity in the country rose sharply in June, spreading optimism about the state of the US economy. Asian stock markets fell because of rising concerns among investors that North Korea is capable of firing nuclear ballistic missiles against its neighbour countries. North Korea fired a missile that landed in Japanese territorial waters, deepening worries about the nation’s offensive capabilities.
Pound Sterling – UK Markets
Today, Sterling lost ground against the US Dollar with the exchange rate set at $1.29. The British Pound strengthened against the Euro, trading at €1.13.
IHS Markit published its UK construction PMI for June. Markit reported that the UK construction sector activity in June slowed after achieving a 17-month high in May. The reading came below markets’ expectations. When asked by Markit researchers, building firms said that there is a renewed risk aversion among clients because of the economic and political uncertainty in Britain. The report also notes that “the degree of confidence among construction companies has fallen to its lowest so far in 2017.”
The “rate wars” in the BoE’s Monetary Policy Committee (MPC), regarding the hike of interest rates, rage on. Ian MacCafferty, who is an MPC member in favour of raising rates, said that “I think it would be justified and the prudent thing to do at this stage. The economy has not slowed to the extent we feared it would last summer, and meanwhile inflation has been high.” His fellow MPC member Gertjan Vlieghe, countering MacCafferty’s view, said that the consumption slowdown is here and that, in this case, a premature hike would pose a great risk.
US Dollar – US Markets
The US Dollar strengthened slightly against the Euro with the exchange rate set at €0.88. The US citizens will celebrate their 4th of July national holiday, in a few hours, meaning that there are not going to be any significant announcements or data releases.
The US currency strengthened on news that factory activity in the US rose sharply in June. According to a survey by the Institute for Supply Management (ISM), factory activity rose to its highest level in the last three years. Economists suggested that this could be a sign that the growth of the US economy accelerated in the second quarter of 2017.
Manufacturing accounts for almost 12% of the overall US economy. The ISM announcement gave optimistic signs that the economy rebounded in the second quarter, and made the Atlanta Federal Reserve to raise its forecast for the GDP’s expansion rate to 3%, instead of its previous forecast of 2.7%. In other news, major automakers reported a drop in new car sales for a fourth consecutive month, despite discounts and looser loan terms.
Euro – European Markets
The Euro dropped slightly against the US Dollar, trading at $1.13. Eurostat released its report regarding producer prices in both the Eurozone and the European Union (EU), which missed market expectations.
Industrial producer prices dropped by 0.4% in May, in both the Eurozone and the EU. On a yearly basis, producer prices went up to 3.3% in the single market currency area, and edged higher to 3.7% in the EU. According to experts, the monthly decline in producer prices in May is associated with the price drops in the energy sector.
Societe Generale released a report which is suggesting that the ECB’s board members are feeling reluctant to give any signals of tightening the ECB’s monetary policy in the upcoming July meeting. Analysts at the French bank believe that the ECB wants to start a process of policy normalisation, but they also want to get the calmest market reaction as possible. The report concludes that it’s just a matter of time before the ECB starts its withdrawal from buying bonds.
Other Currencies – Highlights
Sterling rallied against the Australian Dollar, trading at 1.70 AUD. The Aussie was hit hard after the Reserve Bank of Australia (RBA) announced its plans regarding the monetary policy it will follow. Nobody was surprised when the RBA said it will keep its benchmark interest rate unchanged at 1.5%. It seems though that people of the market were expecting that the RBA would follow its counterparts in Europe and America in hinting at taking an aggressive stance in the future. The RBA’s neutral rhetoric made the Aussie plunge.
The Pound surged to the New Zealand Dollar, trading at 1.77 NZD. The New Zealand Institute of Economic Research (NZIER) released its quarterly business opinion survey. The survey showed that a net 18% of businesses expect better economic conditions over the coming months. The NZIER’s view on the Reserve Bank of New Zealand’s (RBNZ) monetary policy is that there is little urgency to begin lifting interest rates and that the RBNZ will hold off doing that until the middle of the next year.