• Pound reaches fresh 3.5 year high vs. Euro – GBP/EUR above 1.2600.
• US Non-farm Payrolls undershoot targets – risk sentiment damaged.
• Spanish borrowing costs reach 7% – unsustainable level could induce bailout.
• US Dollar grows all around – safe haven flows.
• Canadian Unemployment falls – CAD caught up in risk rally dilemmas.
On Friday the Office for National Statistics announced that UK Factory Gate Producer Prices slowed down from 2.9% to 2.3% in June as oil prices softened. The report also showed that the prices that UK manufacturers had to pay for raw materials declined by -2.3%, which is the lowest UK Input PPI figure since September 2009. The hope for the UK economy is that with the cost of fuel decreasing, Consumer Price Index may follow the Producer’s lead and begin to relax a little which would improve consumers’ purchasing power and therefore help kick-start an economic recovery in the UK.
The Pound to Euro exchange rate reached a fresh three-and a-half year high on Friday of 1.2607 as wary investors sought to cut their exposure to the struggling currency bloc. The Euro was already suffering from Thursday’s European Central Bank rate cut which sent the Pound a cent higher on the day, and the single currency was dealt another blow on Friday afternoon as a disappointing US Change in Non-farm Payrolls print caused a decline in risk appetite.
June’s figure of 80,000 new jobs undershot analysts’ expectations of 100,000 which gave investors cause for concern that the world’s largest economy is faltering. Subsequently the Pound was able to grow by a further half cent to reach a high not seen since November 2008 as Sterling benefitted from defensive inflows from the Eurozone. The Euro also suffered from the news that Spain’s 10-year bond yields have risen above 7%, which is generally seen as an unsustainable level and could lead to the struggling nation requesting a bailout.
US Unemployment remained steady at 8.2% in June and Average Hourly Earnings increased by 2.0% compared-to-an-expected 1.7%, but neither of these two stats were able to detract attention away from the underperforming Non-farm Payrolls.
Although the slow job growth figures seem to point towards underlying weaknesses in the US economy, the results are unlikely to be deemed severe enough to set the Federal Reserve’s printing press into motion, as the ability of Central Banks to offer miracle fixes through non-standard measures has been thrown into doubt recently.
Following the jobs report GBP/USD fell by almost a cent as Cable’s correlation with the MSCI World Stock Index took Sterling lower on depleted risk appetite.
Friday was a very busy day for the Canadian Dollar as the usually sparse economic docket was showered with gifts and gaffs. The Canadian Unemployment Rate fell from 7.3% to 7.2%, which combined with a stronger-than-expected rise in the Net Employment Change figures stood in heavy contrast to the faltering employment stats across the border.
The dilemma for traders of the Canadian Dollar came in how they equated improvements in the Canadian economy with fragility in the world’s largest economy. The choppy trading patterns that ensued reflected this as GBP/CAD traded within a tight half-cent range, finding no clear direction from the employment figures, or from an extremely bearish drop in the Ivey Purchasing Managers Index which fell from 60.5 in May to 49.0 in June.
Over the weekend and in response to the disappointing Non-farm Friday figures, the Pound has mounted a rally of just over a cent against the Australian Dollar. Sentiment for the Antipodeans took another hit early this morning as China’s Consumer Price Index slowed down from 3.0% in June 2011 to 2.2% in June 2012. Market reaction to the Asian Dragon’s cooling economy was initially stable, but it is more than likely that it put a halt to any Australian Dollar renaissance hopes.
New Zealand Dollar
The New Zealand Dollar has also depreciated by over a cent against the Pound over the weekend. It appears that the underperforming US job growth figures have done the equivalent damage to risk appetite that watching Casualty during dinner can do to your culinary appetite!
Data Released Today
July 9th 01:30 CNY Chinese Consumer Price Index (YoY) (June) 2.3%
July 9th 06:00 EUR German Trade Balance (May) €14.1B
July 9th 08:30 EUR Eurozone Sentix Investor Confidence (July) -26.6
July 9th 14:30 CAD Business Outlook Future Sales (Q2)
July 9th 19:00 US Consumer Credit (May) $8.5B
July 9th 23:01 UK RICS House Price Balance (June) -16.0%
- The Pound reached a fresh three and a half year high against the Euro
- The Pound to Euro exchange rate reached a three and a half year high on Monday of 1.2443 as general elections in France and Greece left financial markets reeling.
- The Pound rises to a fresh two and a half year high against the Euro and rises to a near 14-year high versus the Dollar
- Pound to Euro, US Dollar exchange rate: Sterling loses out to high-beta currencies
- Pound to Euro, US Dollar exchange rate: Retail sales increased by the most in one and a half years