Euro rally continues as shares in China tumble
28/Jul/2015 • Currency Updates•
A lack of sentiment towards the US Dollar yesterday caused Sterling to gain against the Greenback, appreciating by 0.35% during the day.
There was little in the way of economic announcements in the UK economy to start the week. However, the Confederation of British Industry did releases its latest monthly industrial trends survey, which continued to dip slightly in July. The gauge dropped from -7 in June to -10 this month. This was weighed down by the strong value of the Pound, currently around a seven year high in trade weighted terms, and the Greek debt crisis, which has made life tough for Britain’s manufacturing exporters. The survey showed that order books for manufacturers fell to their lowest value since July 2013, while those expecting export orders to increase dropped to its lowest reading in nearly four years.
Attention in the UK tomorrow will be squarely on the release of UK growth figures from ONS for the second quarter, with economic expansion expected to have accelerated from 0.4% to 0.7%. However, reaction in Sterling could be muted given the time lag of the data and a recent shift in focus to MPC hawkishness.
The Euro soared by 0.8% to a two week high against the Dollar, while hitting a four month peak against the Swiss Franc, amid a more upbeat picture in Germany.
This Euro rally was fuelled by better than expected economic indicator data from the monthly IFO business indices. Overall confidence in the German economy was given a boost this month by improved optimism around Greece, following the agreement between the country and its creditors over a third bailout. The business climate index, based on a survey of around 7,000 firms, increased from a revised 107.5 in June to 108.0, comfortably above expectations. Equally as encouraging, the expectations index, which is a forward looking index for the next six months, also surprised on the upside to 102.4 this month. Earlier, the import price index in Europe’s largest economy dipped slightly, both on an annualised and monthly basis, while private loans issued by the ECB increased in the Eurozone by 0.6%.
With holiday season now firmly setting in in the Eurozone there will be little in terms of major announcements this week, with no significant data out today. Traders will await consumer confidence on Thursday and revised inflation figures on Friday.
The US Dollar fell by 0.5% against its basket of peers after a fall in shares in China drove demand for safer currencies.
In terms of US data, the highly volatile measure of durable goods orders impressed yesterday. The measure for June will be welcome news to the Federal Reserve hawks, having climbed above expectations by 3.4%, its highest reading since March, and its second highest since orders spiked last July. This increase reflected a surge in commercial aircraft orders according to the US Census Bureau, which reversed its decline from a month previous. Excluding transportation, orders also increased above forecast, to 0.8% for the month. However, the market reaction to the impressive data failed to support the Dollar, with markets instead placing much greater importance on the upcoming FOMC monetary policy statement on Wednesday.
Meanwhile, the Dollar received no help from the latest Dallas Fed manufacturing index. The keenly followed survey came in a -4.6, down on the -4 that was expected, maintaining the generally soft tone we have seen in the US manufacturing sector of late, with wages and benefits in the industry still hovering at slightly subdued levels.
A series of data releases in the US worth noting today include the latest services PMI and consumer confidence from the Conference Board at 3pm London time.
Rest of the world
Away from the currency markets, shares in China took another dramatic tumble during Asian trading yesterday. The Shanghai Composite Index closed a massive 8.5% down, its largest daily decline in more than eight years following more weak economic data fuelling concerns about the health of the Chinese economy.
Meanwhile, the Turkish Lira continued to decline, down to its lowest position in seven weeks amid security concerns after the Turkish army launched air strikes against Islamic State positions in Syria. Meanwhile, four month low oil prices dragged down the Russian Ruble, Australian Dollar and Nigerian Naira.