Greece fails to meet IMF repayment deadline
01/Jul/2015 • Currency Updates•
An uptick in UK growth was not enough to prevent the Pound depreciating against a broadly stronger US Dollar on Tuesday, ending 0.1% lower.
As was widely expected, growth in the UK in the first quarter of the year was revised upwards from the initial estimate. Fresh data released by the Office for National Statistics revealed that the economy grew by 0.4% in the first three months of 2015, as opposed to the 0.3% that was originally quoted. The economy continues to be buoyed by high consumer spending, the backbone of the British economy, and an upturn in business investment. However, exports continue to drag on the economy and despite the revision. Economic expansion remains around half of that seen in the last six months of 2014, although the Bank of England expects this to quicken as the year progresses. The larger than expected current account deficit of just over £25.5 billion, will be of more concern to policymakers. The ONS also bumped up its estimate for Britain’s current account deficit in 2014 to 5.9%, the largest since records began way back in 1948.
Traders in the UK today will be focused on the manufacturing PMI at 9.30am, as well as the bi-annual release of the Bank of England’s Financial Stability report, a gauge of the central bank’s assessment of the stability and resilience of the financial sector.
The single currency fell by 0.3% against the Dollar on Tuesday, as Greece became the first developed nation to miss an IMF repayment deadline last night. The country failed to meet the 1.5 billion Euro loan payment; the largest in the Fund’s history.
Earlier in the day, the Greek government launched an audacious last ditch attempt to secure an eleventh hour deal with creditors, seeking a third bailout by submitting a new two year aid proposal. The bid to secure better terms was, however, shot down almost immediately by Angela Merkel, who claimed the new proposals could not be considered until after Sunday’s referendum. However, finance ministers are now set to discuss Alexis Tsipras’ proposals today, including discussions on debt restructuring, an issue that lenders have so far been reluctant to tackle.
Elsewhere, inflation in the Eurozone eased slightly last month, following a softening of energy costs and food prices, which spiked in May. According to Eurostat, consumer prices increased by 0.2% in June, down slightly on the 0.3% annualised increase recorded in both April and May. The data suggests that the European Central Bank has a long way to go with its quantitative easing programme, although encouragingly it marked the third straight month price growth had been positive. The core rate also dipped by 0.1%, to 0.8%. Elsewhere, unemployment in the Eurozone remained unchanged at 11.1%, despite unemployment decreasing in Germany in absolute terms for the ninth straight month.
Unsurprisingly, attention in the Eurozone today will remain on the situation in Greece. However, the manufacturing PMI’s this morning are worth noting, and could lead to moderate volatility in the Euro.
Traders pumped into the safe haven US Dollar on Tuesday, on the back of news that a last minute deal in Greece was off the table. The US Dollar index soared in the afternoon, finishing 0.35% higher for the day.
Consumer confidence strengthened in June, climbing back towards its multiyear high after increasing from 94.6 to 101.4, its highest since March. Confidence in the US was boosted over the past month by an improving labour market and business conditions. Optimism about the short term outlook also increased, and is likely to transfer to an increased willingness to spend in the coming months. Meanwhile, the Chicago purchasing managers index increased to 49.4, although remained bearish, while the Standard & Poor’s home price index showed house price growth remained mostly unchanged at 4.9% YoY in April.
There are a number of economic announcements in the US this afternoon that are likely to influence the Dollar today. The ADP measure of employment change is due in early afternoon trading, followed by manufacturing growth from Markit at 2.45pm, and then ISM at 3pm, all London time.