Lacklustre rebound for the pound

Like all of the major currencies, the British pound is being driven higher by US Dollar weakness. However, compared to the euro, or even the Japanese yen, the rally for sterling was lacklustre. The Confederation of British Industry released its total trends survey yesterday and according to the report, orders fell sharply in the month of July. However, even with this reported decline, prices increased and business optimism improved significantly. Factory orders hit a 2 year low and expectations for export orders in the next 3 months fell to the lowest level since October 2011. At first glance, this report is negative for sterling and reflects the strain that a strong currency (versus the euro) has had on the economy, but both businesses and consumers are optimistic and this bodes well for future activity. According to a separate survey released by Nielsen, consumer sentiment exceeded the global average for the first time in 9 years. Second quarter GDP numbers are scheduled for release today and growth is expected to have accelerated at a faster pace.

Monday saw the euro strengthen against all its major competitors, appreciating over 1% against the pound, testing the 1.40 (IB) barrier. The release of German ifo business climate data caused a sharp appreciation yesterday morning, as it increased over expectation by the largest amount in the last 5 months. This result bodes positively on the economic outlook for Europe’s strongest economy in the coming months, acting as a leading indicator to economic health. Greece is set to continue formal talks with its creditors regarding the final bailout package today, a week later than originally scheduled. The final agreement must be in place before 20th August, when Greece must repay over €3 billion to the ECB. As the Greek saga draws to a close, the euro may continue to strengthen as investor confidence rebuilds. News of a possible hack into the Greek tax systems by the old finance minister, Varoufakis, have been revealed. However, the exact truth behind the allegations remain unproven and have not affected the markets.

The dollar extended last week’s losses yesterday despite the release of better than expected durable goods orders as sentiment towards the currency remained under pressure ahead of Wednesday’s FOMC statement. The US Commerce Department reported that durable goods orders had increased by 3.4% last month, surpassing expectations for a gain of 3%. This subsequently led to a revision of May’s 2.2% figure, which now reads at 2.1%. EUR/USD rallied to reach two-week highs as the German ifo business climate index beat expectations, leaving the pair 1.3% higher for the day over the 1.11 (IB) handle. Similarly, the dollar also lost further ground against sterling, finishing the day 0.6% higher. The market would suggest that investors are becoming increasingly cautious over a September rate hike, so all eyes are focused on Wednesday’s policy meeting. Today we have consumer confidence data as well as market services PMI for July. Watch out for any unexpected figures.

The Aussie slide endures, and it now sits at its lowest level since April 2009. The Reserve Bank of Australia stated yesterday that further AUD weakness was both ‘likely and necessary’. With the rest of the world tapping their fingers for an interest rate rise in the US, the RBA has a dovish tone, reminding everyone that there is still room to cut rates domestically. We have touched upon the reasons for Aussie Dollar weakness in the past, poor iron, ore and copper prices alongside the tumble in the Chinese stock market. However, many Australians were relieved to see more positive housing market news come out of China yesterday. We will wait to see if this stems the tide. The only news of note today sees the raw materials price index released from Canada.