All quiet on the UK front

Yesterday’s economic calendar echoed Monday’s with very little to report, continuing a muted start to the week for the UK. Public Sector Net Borrowing was the highlight of the day and the only significant release on the calendar. British government borrowing in June fell by less than expected, but was its lowest for that month in seven years, the latest sign that the turnaround in the country's economy is helping the public finances, coming in at £8.58 billion during June vs. May’s £8.35 billion. Unfortunately, the positive news soon elapsed as we approached the afternoon session where the pound lost 0.5% in value against the struggling euro as the pair traded closer towards the support levels of 1.42 interbank (IB). The recent optimistic comments from the Bank of England Governor, Mark Carney, and Monetary Policy Committee member, David Miles, have certainly supported the pound’s recent strength as expectations for an interest rate hike by the end of 2015 continue to dominate the markets. This morning’s BoE’s MPC minutes from their meeting two weeks ago will be watched closely and any change in the voting pattern for an interest rate hike will undoubtedly cause volatility.

The euro had a very strong day against all its competitors yesterday, strengthening over 1% against the pound. As has been the trend of late, this move was not related to the fundamental economic data within the euro area, but rather investors reacting to the Greek resolution. The main news was released from the IMF who confirmed Greece had cleared its overdue payments and was no longer in arrears. Greece was able to do this using the emergency liquidity it was provided following their new fiscal reforms such as the VAT rise from 13% to 23%. The Greek parliament will vote today, deciding upon the prerequisites for further financial aid. If this result comes out in favour of the reforms, it looks likely Greece will emerge from this economic disaster remaining in the European Monetary Union. However, it remains to be seen if Greece will be able to maintain the strict austerity measures which could drastically limit its growth across the next decade.

Despite a lack of economic data yesterday, the dollar managed to give back some of its most recent gains against the euro, pulling back from April 2015 lows of 1.0808 (IB), finishing the day over 1% lower against the single currency. Conversely, GBP/USD traded in a very narrow range, finishing the session flat for the second consecutive day which would suggest that the main driver in the markets has been a fluctuation in treasury yields. The euro appears to have benefitted from strong inflows into German bonds, whilst US 10-year treasuries finished the day lower at 2.33%, down from 2.4%. Another catalyst for the move was a revision in growth figures for the industrial sector which is 2.6% lower than the Fed had expected. This will naturally make the Fed more tentative about hiking rates this September. Another relatively quiet day is expected today, although do look out for house price index and existing home sales data out this afternoon.