Fears of a Grexit dent UK household confidence

There was little data released yesterday from the UK, but the pound did make over a cent gain versus the euro, mainly on the back of the poor data out of Germany and further developments with the Greek bailout and the IMF. Versus the dollar the pound traded in a much tighter range.

The only economic report worth mentioning, was UK consumer confidence. The report showed that Brits are turning pessimistic about the economy, despite low inflation and rising wage growth. It seems that fears about Greece and the eurozone contributed to knocking five points off the outlook for the UK’s general economic situation in the GFK’s consumer confidence index for July. The reading fell to -1, ten points lower than this time last year, however, overall the index remained in positive territory - up 1 point to 6.

It will be another quiet day for fundamental data releases from the UK, so movements for the pound will no doubt be heavily influenced by the ongoing Greek saga as well as the timing of the impending interest rate hike.

Thursday made it a hat-trick of poor days for the euro weakening another 0.5% against the pound.
This can be attributed to the poor economic data released from both Spain and Germany. Spain had a particularly poor day releasing yearly CPI at 0%, further stoking the fears of deflation becoming a major problem in Europe and is also a sign of the ineffectiveness of the quantitative easing program. This was then followed by quarterly GDP, releasing 0.1% lower than expectation at 1%. Germany added to the euro weakness reporting unemployment claims increasing by nine thousand when the forecast was for it to fall by five thousand.

Adding extended pressure to the euro, the IMF has started that they will not have any involvement on the €86 billion bailout for Greece unless the eurozone agrees to the controversial debt relief on existing loans, worth €200 billion. This presents a major hindrance for Greece as many are now fearing that the highly indebted country will struggle to pay what it owes.

Today sees economic data from Germany, France and Italy, which again could cause euro volatility, with German retail sales already released this morning printing a worse than expected figure of -2.3%, which has not had much impact as yet. The markets will also be looking towards the weekend to see if any further news regarding the Greek bailout is released. If we do see the final bailout confirmed and the European Union is united again we can expect to see significant euro strength.

Yesterday saw a flurry of activity form across the pond as it was announced that U.S economic growth accelerated in the second quarter with GDP (growth) figures coming in at an annualised 2.3%. Perhaps the most positive aspect of the release was the upward revision of Q1 GDP to 0.6% from -0.2%, a sign that the economy is finally seeing solid growth. Next up was initial jobless claims, which increased by 12k to 267,000. Dismissals holding below 300,000 for the 21st consecutive month, combined with a solid job market, will offer the Federal Reserve food for thought as itlook towards raising interest rates in September. The greenback traded within a tight 75 point range against the pound yesterday, initially starting the day strong before giving up most of its gains over the past couple of days. EUR/USD extended its bearish decline below 1.09 (IB), a significant level of support.

Today sees very little in the way of data releases. That being said, the dollar will remain in focus as each data release has the potential to influence a potential interest rate hike.

Yesterday saw Australian building approvals drop the most since last September. The official report showed June building approvals fell 8.2%, while import prices rose just under expectation and export prices fell quite dramatically by 4.4%. Overnight we had more news out from Australia as quarterly PPI data was released. PPI measures changes in the selling prices received by producers. The figure came out lower than expected at 0.3% after being forecast at 0.6%.

The mixed news from yesterday doesn’t give us much further insight into what the next steps are for the southern hemisphere currency, however, the Reserve Bank of Australia has suggested we should expect to see further action before the end of 2015.

To round off the week, we have the Canadian GDP report out later this afternoon. Other than this it is a fairly quiet end to the week.