Global Themes

  •  German political chaos disrupts Euro
  •  Sterling’s shocking quarter two
  •  US Dollar starts H2 on positive note


German political chaos disrupts Euro

The Euro starts the week on the back foot as the future of Germany’s coalition government hangs in the balance following Interior Minister Horst Seehofer’s threat to resign. Mr Seehofer is unhappy with the migration deal that German Chancellor Angela Merkel struck with fellow European Union (EU) leaders last week and wants Germany to turn away already registered asylum seekers at the border. The uncertainty and lack of unity in Germany’s political environment is unnerving investors and weighing negatively on the Euro. The run towards $1.17 against the US Dollar came to a grinding halt skidding over half a cent lower, back towards $1.16. The weaker Euro has also allowed GBP/EUR to retain the €1.13 handle for now.

An eventful economic calendar week kick starts with manufacturing PMI’s from a multitude of EU countries today, with the salient being the Eurozone’s June figure revealed at 9:00am. The forecast is unchanged from the previous print of 55 but a miss could spark volatility in the market. The unemployment rate for May is due at 10:00am is also expected to remain near 10-year lows at 8.5%.

  •  Eurozone producer price Index and retail sales data is out on Tuesday and services and composite PMI’s are due on Wednesday.


Sterling’s shocking quarter two 

The second quarter of the year was the worst for the British Pound since the June 2016 European Union (EU) referendum, as a combination of big factors caused significant damage to Sterling. The absence of progress on Brexit talks, the lack of clarity on when interest rates may rise in the UK and the market desire for safe haven assets with the fears of a trade war between the US and China, has left the pound with a clear lack of support. During quarter two, GBP/USD hit a 7- month low, the pound lost over 4% against the JPY and dropped to over 3-month lows towards €1.12 against the Euro.

Sterling did at least break a downward trend against the US Dollar on Friday, as Q1 GDP growth was revised up from 0.1% to 0.2% q/q. GBP/USD now sits just below $1.32, and there are some key PMI releases to watch this week. Manufacturing is released at 9:30am this morning, with construction at the same time on Tuesday and the important services release on Wednesday. Bank of England Governor Mark Carney’s take on the economy in a speech at 11:00am on Thursday will also be closely watched

  • Prime Minister Theresa May will have a meeting with her warring cabinet on Friday, and Sterling will desperately need some consensus on the way forward with the Brexit talks if quarter three is to be better than quarter two. A white paper is expected to be produced by the government this month and presented to the EU, but if there is no agreement made in cabinet, and what is produced is not acceptable to the EU, the risk of a no deal Brexit grows ever closer, which could severely damage Sterling.


US Dollar starts H2 on positive note 

The US Dollar has kick-started the second half of the year on a positive note this morning, up against most of its major currency peers. Friday saw US personal consumption expenditures (PCE), rise to 2% y/y, prompting investors to maintain current sentiment that the Federal Reserve will raise interest rates once more in 2018. The Dollar index which tracks the performance against a basket of 6 currencies is up this morning within trading distance of the 95-mark. EUR/USD has bounced away from the $1.17 handle a level which has traded twice over the past week and could be a short-term ceiling for the pair.

Looking ahead this week, US ISM will be released this afternoon at 3:00pm with a forecast to fall slightly. The main focus for traders will be this Friday where we see non-farm payrolls and average earnings released, potentially providing currency markets with some volatility. On Thursday, the Federal Open Market Committee will release the minutes from their last policy meeting back in mid-June, so tones of forward guidance will be the one to watch.

*The rates displayed by our free currency converter are neither "buy" nor "sell" rates, but interbank rates, the wholesale exchange rates between banks. Interbank rates don’t include the spreads, handling fees, and other charges that may be assessed by foreign exchange providers. Please note that, as such, these rates are provided for indicative purposes only. Prior to booking a transaction, Western Union Business Solutions will advise you of the actual rate then available for a particular currency transaction.

Deliver the Daily Currency Market Analysis to my Inbox

Published five days a week, this newsletter provides day-to-day trends and activities affecting the market in easy-to-understand snapshots.