US Dollar falls as external factors weigh on FOMC
09/Jul/2015 • Currency Updates•
Sterling depreciated throughout the London trading session yesterday, ending 0.35% lower versus the US Dollar.
Focus among traders in Britain yesterday was on George Osborne and the announcement of the latest budget from the Conservative Government. While there was little reaction in Sterling, there were a number of key points worth noting. In the first all-Conservative budget since 1996, Osborne set out plans to cut welfare, lower the tax bill for workers, and counter lower productivity, as outlined at the latest Bank of England inflation report. Growth forecasts for 2015 were revised lower from the 2.5% projection made in March to 2.4%, while the date when UK public finances would move into surplus was pushed back to 2019/20. In line with our view, the Chancellor emphasised the recent strength of the UK economy, although cited Greece as an example of the need of reduce spending and borrowing.
House prices in Britain rose last month according to Halifax. The average house price exceeded £200,000 for the first time after prices rose by an annualised 9.6% in the three months to June, up by 1.7% on a month previous.
The Bank of England will today be announcing its interest rate decision for July, following its two day monetary policy meeting. No surprises expected here, with the central bank set keep rates unchanged yet again at 0.5%.
Euro losses during the Asian trading session were reversed yesterday as traders awaited news out of Greece. The Euro appreciated by 0.5% against the Greenback.
A second consecutive day of very little economic indicator data in the Eurozone meant attention was once again solely on Greece. The Greek Government submitted a formal application for a third bailout programme, in a bid to avoid crashing out of the Eurozone. Athens and new Finance Minister Euclid Tsakalotos pledged to implement tax and pension reforms as soon as next week. This came after Prime Minister Tsipras called for a fair deal at a speech to the European Parliament, promising to deliver detailed reform proposals on Thursday. Meanwhile, France continued to be Greece’s staunch ally in a bid to avoid a Grexit, while it was announced banks in the country would remain closed for the remainder of the year.
This morning we’ll see the release of the trade balance from Germany at 7am London time, followed by the latest unemployment and inflation figures from Greece.
Despite yesterday’s decline in cable, losses versus the Yen and Euro caused the US Dollar index to end the day 0.3% lower.
Last night we saw the release of the Federal Reserve’s monetary policy minutes, which in the end turned out to be a non-market mover. The minutes from the June 16-17th meeting were a bit dated, given recent developments in Greece. However, policymakers voiced concerns over a lack of a final agreement and spill over effects on the US economy. Many rate setters also wanted to see more evidence of strong economic growth and high inflation. On the hawkish side, several saw labour market slack being largely eliminated, with “some” saying that conditions for an interest rate hike have been met, or would be met shortly.
The nature of the minutes suggests that a July lift off is not on the cards, although we still expect a September increase from the central bank. This, however, may be dependent on whether Greece remains in the Eurozone.
Today will be a quiet day in the US economy, with weekly jobless claims the only major data point. US Dollar volatility is likely to focus on fall out from last night’s FOMC minutes.
Rest of the world
The Chinese Yuan touched a four month low in the offshore market following a deepening stock market rout.
Meanwhile, the Japanese Yen climbed to a seven week high, rising by over one percent on the US Dollar, after investors piled into the safe haven currency following increased uncertainty in China and Greece.