Sterling Strengthens on Brexit Anniversary
Today marks the anniversary of the Brexit Referendum vote. Sterling rallied against the US Dollar, trading above the $1.27 mark, on news that Theresa May’s plan over the protection of the EU citizens’ rights living in the UK was received as a good starting point for the negotiations with EU leaders. May said that the British plan is “a fair and serious offer,” while Angela Merkel commented that it is a good start, but there are many issues yet to be resolved. Kristin Forbes’ opinion that the Bank of England (BoE) shouldn’t delay raising its interest rates any longer played a significant role in the rise of the Pound. Forbes is a parting member of the Monetary Policy Committee (MPC) and is famous for her “hawkish” views.
According to published data, the Eurozone’s private sector posted its best quarter in the last six years, spreading optimism among investors and traders. In France, the country’s GDP expanded faster than experts were anticipating. Private sector employment in France increased in the fastest rate in ten years.
Pound Sterling – UK Markets
Today, the British Pound rallied against the US Dollar, gaining 0.4% in value and surpassing the $1.27 mark. Sterling also strengthened against the Euro, with the exchange rate set at €1.13.
Theresa May presented her plan over the issue of the EU citizens’ rights, who live in the UK, to EU leaders during a summit in Brussels. May’s plan offers the chance to those who arrive lawfully in the UK before Brexit, to build up the same rights to work, benefits and healthcare as UK citizens. The plan entitles them to a new special category of “settled status”, which the EU citizens will be able to maintain for life. Theresa May said that the offer is “fair and serious” and added that she doesn’t want to see anyone forced to leave the UK. However, the British government is not ready to accept the EU’s demand to allow the European Court of Justice (ECJ) to guarantee those rights.
Kristin Forbes, who is the parting member of the MPC of the Bank of England (BoE), in her final speech at the London Business School, said that the raise of the central bank’s interest rates should not be delayed any longer. Forbes suggested that the British economy is solid enough on key economic criteria to withstand a reduction in the amount of monetary stimulus.
US Dollar – US Markets
The US Dollar slumped against the Euro, trading at €0.89. The good results of the annual US banks’ stress tests and the good data regarding the country’s jobless claims didn’t help the US currency rise.
The annual stress tests, conducted by the US Federal Reserve, showed that the 34 largest banks in the US have the necessary funds in their vaults to withstand a severe recession. The Fed’s scenario had as a target to see how the large banks would react in the event of a global recession accompanied by an unemployment rise at 10% and a sudden drop in property values. Fed officials said that the banks have enough capital to face the consequences of a severe recession because, since 2009, the 34 tested banks have added more than USD 750bn in common equity capital. In the Fed’s scenario, the banks would suffer combined losses amounting to USD 500bn.
Published data by the US Labour Department showed that the number of American citizens filing for unemployment benefits increased slightly last week, but the number still remains consistent with a tight labour market. This was the 120th consecutive week that jobless claims have been below 300,000, which is the threshold linked to a strong labour market.
Euro – European Markets
The Euro rallied against the US Dollar, gaining 0.3% in value, with the exchange rate set at $1.11. The single market currency strengthened on good news regarding the Eurozone’s private sector performance.
Markit’s report on factories and service sector firms across the Eurozone showed that the private sector recorded its strongest quarterly growth since 2011, which is considered the starting point of the financial crisis. Private sector’s growth was a bit weaker than expected, but as the report notes “firms continue to expand capacity to meet rising demand.” Markit’s report on the German economy indicated that the country is still enjoying solid growth, despite the fact that the service sector is falling behind the manufacturing one.
In France, the country’s GDP expanded faster than predicted in the first quarter of 2017. Data published showed that the French GDP grew by 0.5 in the first three months of the year, instead of the 0.4% expected. Business investment increased by 1.2%, driving the economy’s growth, but exports fell by 0.7% and household consumption remained stable.
Other Currencies – Highlights
Sterling dropped against the Australian Dollar, trading at 1.68 AUD. The exchange rate has continued falling since it reached the 2017 high 1.76 AUD in May. Experts believe that the improvement of the Australian economy and the Reserve Bank of Australia’s (RBA) decision to stop cutting interest rates—which has helped the Aussie—has played a crucial role in the drop. The National Bank Australia (NAB) became the third of the four major Australian banks to reduce its standard variable rate (SVR) for home loan customers. Australia and New Zealand Banking Group (ANZ) and Westpac have already reduced their SVRs earlier this month.
The British Pound gained a bit of ground against the New Zealand Dollar, with the pair trading at 1.74 NZD. The Reserve Bank of New Zealand (RBNZ) acknowledged, in its statement after its June policy meeting, that “a lower New Zealand Dollar would help rebalance the growth outlook towards the tradable sector.” Concerns over a housing bubble eased as the RBNZ mentioned that the house price inflation has moderated further and is expected to continue in the next months.