Euro strengthens off the back of positive bailout sentiment

The pound endured a mixed day yesterday, having started strongly on the back of positive Construction PMI data, the London session saw the pound lose key ground against a number of its peers, but particularly against the euro. Construction PMI ticked up to 55.9 against the estimate of 55.1, giving a positive snapshot into the health of the UK economy and its appetite for growth, coupled with similarly positive Net Lending data, which confirmed that almost £600m more had been lent to UK consumers than the estimate of £2.3bn. This saw the pound maintain its strong position against the euro, topping out the daily high at 1.3926 interbank (IB) through the morning session, whilst against the dollar, it appreciated through the key resistance line of 1.5337 (IB), topping the daily high at 1.5344 (IB). Sterling has been able to maintain its value over recent weeks, but this has largely been in a market where both the euro and dollar have been suffering their own issues. However, with an increased impetus being driven by European officials to broker a deal with Greece and what appears to be signs of better data from the US, it is possible that the pound may suffer some rate deterioration. Services PMI will be the main event on the UK data calendar today. As this is the key component of UK GDP, this release is considered tier one data and will undoubtedly have a high impact onto the market. Events in Europe will continue to affect sterling prices, as will the run of US employment data that starts today and culminates with Non-Farm Payrolls on Friday.

The events in Europe by now should require little introduction, as they have been the talking point of 2015 and now that we are halfway through the year, it appears that events in Greece could finally be coming to a head. Greece are expected to make payments totalling €1.5Bn to the IMF through the course of June, starting with the initial payment of €300m which is due this Friday. There are fears that any one of these payments could be missed, thus signalling a default and ultimately a Greek exit from the Eurozone, the repercussions of which are almost unthinkable. However, over the course of the London trading yesterday, news started to trickle through that potentially a deal had been struck. IMF Chief, Christine Lagarde had met with Mario Draghi (ECB President), Angela Merkel (German Chancellor) and Francois Hollande (French President) over the course of Monday/Tuesday, in a last ditch attempt to broker a deal with Greece to release bailout funds, before what seems like the inevitable payment default on Friday. This news had an immediate impact on the markets, with the euro appreciating the most in 10 weeks against the dollar, hitting a daily high of 1.1192 (IB) and against the pound saw levels break back into the 1.37 range, bottoming out at 1.3705 (IB). As yet, no deal has been published, however, it is worth noting the effect of this speculation on the markets. Clearly securing bailout funds is viewed as euro positive and as such will likely help the single currency pull back ground lost on the speculation of a Eurozone split, however, it is worth noting that such talks have been seen to break down at the eleventh hour before. ECB interest rate decision is due at 12:45pm where the expectation is for rates to be left on hold at 0.05%. The press conference that follows at 1:30pm will as ever provide some movement as the market looks for any clues to further policy or a Greek bailout deal. Additionally today sees the release of services PMI (tier two data) across all major European nations.

There were no major data releases from the US yesterday, in what was a relatively quiet day stateside, with the exception of m/m Factory Orders data, which printed behind expectation at -0.4%. As mentioned the dollar suffered against both the pound and euro over the course of the trading session, as once more, investors felt that the dollar was overvalued. The world’s most traded currency seems to have been struggling to gather any momentum recently, as the bull rally seen at the start of the year is now a distant memory. Consensus still favours a stronger dollar over the course of this year, something that will be intrinsically linked to the much speculated interest rate rise, however, for now this is some months off and presently the dollar could be considered an ‘underperformer’. This week sees that start of key employment data released each day for the rest of the week, culminating in non-farm payrolls published this Friday. The importance of this data is huge as the Fed have already stipulated that they will need to see a sustained improvement in not only the labour market but also inflation figures before they consider a rate rise. Transitory factors, including the weather have been attributed to the poor data of Q1 and so with such issues now less of a concern, the data will be expected to perform accordingly. Today sees a string of top tier data from the US starting with ADP Non-Farm Employment change at 1:15pm, then trade balance at 1:30pm and lastly at 3pm ISM Non-Manufacturing PMI data. As mentioned, the US market is very data dependent at present and as such we will be expecting high volatility today.