Global Themes

  • Euro’s trajectory tampered
  • Sterling needing Brexit boost
  • Trade wars weigh on commodity currencies
  • Chinese Banks intervening in currencies?


Euro’s trajectory tampered 

The second half of the year began with the Euro hurt by political upheaval in Germany, as quarrels on migration policy between Chancellor Angela Merkel and interior minister Horst Seehofer simmered. The fear of the grand coalition potentially collapsing was weighing on the Euro until Ms Merkel and Mr Seehofer managed to reach a compromise agreement. The agreement to place transit centres on the border of Germany and Austria for asylum seekers already registered in other European Union countries helped the Euro trim losses, allowing EUR/USD to end yesterday’s session back in the mid $1.16 zone. Against Sterling, the common currency hassled GBP/EUR back under €1.13 where it remains capped this morning.

Today, the Euro appears insipid, lacking any directional conviction with little in the way of economic releases to aid impetus. Market sentiment is likely to pave a route for the Euro but producer prices and retail sales data for May will be unveiled at 10:00am and could influence direction. The annualised producer price index is expected to rise 2.7% from April’s figure of 2% but annualised retail sales is forecast at 1.5%, down from April’s 1.7%. Euro traders will also monitor a keynote speech by European Central Bank chief economist Peter Praet at 5:00pm this evening.

  •  EUR/USD has threatened to break below $1.15 a handful of times since the start of June, but indecision in the market determining which way this pair will drift was reflected in last week’s closing rate nearly matching the opening rate. It can be argued that if this week closes above $1.17 then perhaps this signals an ensuing uptrend but anything nearer the $1.15 handle could add further selling pressure on the Euro.


Sterling needing Brexit boost 

The British Pound is in a state of limbo as we await further details on the progress of UK Brexit plans. GBP/EUR is just below €1.13 this morning after tentatively climbing back above it yesterday and GBP/USD is in the mid $1.31 handle after failing to hold onto $1.32 yesterday. The cabinet meets on Friday to discuss the proposals from Number 10 on issues such as the customs arrangements and the Irish border. The end result will be to produce a white paper that the EU can review at a general council meeting on July 20th. The details of the paper could be released next week, and if what is put forward does not look like it will lead to progress with the EU, the pound could suffer further damage.

Parliament’s Treasury Select Committee have asked Chancellor Phillip Hammond and Bank of England (BOE) Governor Mark Carney to produce impact studies on Brexit – the results of which would unlikely be a positive for Sterling. Neither Mr Hammond nor Mr Carney have hidden their thoughts on the potential economic damage Brexit, particular a ‘hard’ Brexit, would cause.

  •  Manufacturing PMI released yesterday showed a small uplift from the June release, up to 54.4 from 54.3 and beating expectations of a slight drop. Construction PMI is out at 9:30am today, with forecasts of 52.6 up from the previous release of 52.5. The critical services PMI is released tomorrow morning.


Trade wars weigh on commodity currencies 

The trade wars are having a wider influence on currencies than just immediately impacting the US Dollar and safe-haven currencies. Commodity-driven currencies, such as the Australian Dollar and New Zealand Dollar, are also feeling the weight of the current tensions between China and the US. The tariffs imposed on Chinese goods are likely to have a knock-on effect on AUD and NZD as China imports a lot of its raw materials from these countries and demand will likely reduce if demand for Chinese goods declines.

  • Overnight the Reserve Bank of Australia held interest rates at 1.5% after its policy meeting. The meeting concluded that the outlook for the nation remained steady. GBP/AUD did breach the A$1.7900 handle before retreating to A$1.7830 this morning. GBP/NZD has enjoyed a nice run recently, notching 6-consecutive days of gains to trade around the NZ1.96 mark.


Chinese Banks intervening in currencies? 

A report from Reuters stipulates that Chinese banks have been acting on behalf of their central bank in the currency markets. Though it is not the first time these accusations have been made, the timing does not seem coincidental. Traders for these Chinese banks have been reportedly selling the Chinese Yuan in favour of the US Dollar, increasing their USD stockpile.

  •  As a result, USD/CNH has hit an 11-month high, breaking above the 9.7 handle. GBP/CNH has clocked 11-week highs hitting 8.8360, and is up 4% since the low of June. Due to the divergence between the US Dollar and Chinese Yuan, it could be a time for market participants to take advantage of this, as this scenario has not presented itself for 11 months.

*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.

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