Pound, Euro and Dollar: The Outlook for the Big Three at the Start of the New Week
Will the euro exchange rate complex maintain its strength as we head into the new week?
The failure to reach an agreement on the Greek government’s proposals over the weekend means that Greece will continue to be the focus of attention for markets in the week ahead.
Euro area leaders have given Greece a deadline of Wednesday for the parliament to enact their main demands. In the meantime the euro exchange rate complex continues to trade on the front-foot:
The British pound to euro exchange rate fell from a high of 1.4138 last week to a low of 1.3843 confirming we enter the new week with momentum favour the euro. The pair is at 1.3940 at the time of writing.
The British pound to US dollar exchange rate peaked at 1.5629 last week before plumbing beneath 1.5350 - the pair is currently at 1.5545.
The euro to US dollar exchange rate hit a low at 1.1056 and a high at 1.1216 confirming 1.10 to be solid support. Momentum lies with the euro as we see the pair at 1.1154.
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Outlook for the Euro: Dramatic Greek Developments
Any disappointments on this front will however curb enthusiasm towards the shared currency, but as shown over previous weeks any declines in the euro are likely be shallow.
But - could this time be different?
Over the weekend, a plan drafted by the German finance ministry laid out two stark options for Greece: either the government submits to drastic measures such as placing €50bn of its assets in a trust fund to pay off its debts, and have Brussels take over its public administration, or agree to a "time-out" solution where it would leave the eurozone.
Grexit suddenly looks tangible - will it finally hit the euro though?
Many intitutional forecasters are pricing in a lower euro on the basis that Greece is forced out of the Eurozone and the ECB is forced to respond by boosting stimulus inititatives.
For now though, "We remain trapped in the midst of the 1.0450 to 1.1460 trading range in terms of EURUSD, while we wait for UK data tomorrow to see if EURGBP can push back down to test the .7000 support zone," say Lloyds Bank Research at the start of the week.
Outlook for the Pound: Employment and Bank of England
The pound sterling has certainly fallen out of favour over recent days despite the fact the UK economy continues to grow at a solid pace.
Profit-taking and market positioning appear to be to blame - indeed, the pound has been one of the best performers over recent months and consolidation should be expected.
This week May/June Employment Data is delivered on Wednesday 15 July.
“We are in line with consensus in looking for ILO unemployment rate to remain unchanged at 5.5%. The risk seems biased towards a slightly weaker number, however, as this month’s cohort in the sample is at risk of a rise in the number of unemployed,” says Richard Kelly, Head of Global Strategy I TD Securities.
More focus is likely to fall on wage growth, though.
Headline earnings are likely to move north of 3% y/y growth for the first time since early 2010 and accelerate faster than expected in May.
Bank of England Governor Mark Carney delivers a speech on Thursday the 16 July.
“Before the Greek crisis flared back up, we were starting to see MPC members willing to be a bit more hawkish. We think Carney will maintain the status quo and stick to a market-neutral message at this stage,” says Kelly.
Kelly points out that sterling has been extremely volatile recently and is in the middle of the range for the last month.
“That leaves it vulnerable for a nudge in either direction,” says Kelly.
June CPI comes on Tuesday the 14 July and there is talk of inflation falling back into negative territory - something that will certainly hurt the pound.
Expectations are for 0% to be released.
US Dollar Outlook: It’s All About the Data
Good old data is what will matter for the USD.
“Retail sales should have been sustained quite nicely by the vigorous labour market and we estimate their m/m growth rate at about 0.4%,” say NBF Economics and Strategy.
On the inflationary front, the Producer Price Index will be published on Wednesday and on Friday NBF reckon the Consumer Price Index should show headline inflation picked up 0.2% year over year in June, on the back gas prices having rose at an above seasonal pace.
Core prices (i.e., excluding food and energy) are also seen accelerating in the month, gaining one-tenth of a percentage point to 1.8%.
On Wednesday, the Beige Book will provide anecdotal evidences about the state of the economy.