Monday started with eurozone CPI undershooting market expectations once again. The Flash Estimate y/y for June was unchanged from May’s reading of 0.5%, though a slight uptick to 0.6% was forecast. However, the accompanying core reading brought some relief, showing an increase from 0.7% to 0.8%.
Monday was also the start of a pretty mediocre run of German data, with German Retail Sales showing a fall of -0.6% when an increase of 0.8% was expected. EUR/USD hit a weekly high of 1.3695 on Monday, with GBP/EUR starting the week at 1.2458. Meanwhile, US data started the week with more encouraging news from the housing market when Pending Home Sales m/m smashed forecast to show a 6.1% monthly increase, much higher than the anticipated 1.4% rise.
By Alex Edwards at UKForex, an international money transfer service
Holders of the Aussie will have been buoyed by the RBA Statement on Tuesday morning. The report didn’t state anything new, saying that rates will remain on hold for the foreseeable future and policy would continue to be accommodative – however, the tone remained neutral with no mention of an “uncomfortably high” exchange rate. AUD/USD, which has been trading around .9410, jumped to .9455 on the release. The European session started with Spanish Manufacturing PMI beating forecasts, but the Italian reading fell short. German Unemployment, which was expected to show a modest fall of -9k, actually rose 9k, with the previous reading also being revised up from 24k to 26k.
Another good week of UK data kicked off with the Manufacturing PMI printing 57.5, up from last month’s 57.0 and better than the 56.7 forecast. The report showed that job creation in the sector was at a 39-month high, with Q2 growth in the sector expected to beat the 1.5% expansion registered in Q1. Cable, which had been hovering around 1.71, jumped 20 pips and traded as high as 1.7165 during afternoon trading in New York. Holders of the euro will have been encouraged by the unemployment rate holding steady at 11.6% when a rise was expected. The ISM Manufacturing PMI from America printed 55.3 – not quite as high as expected, but well into expansionary territory.
Wednesday saw another positive PMI from the UK, as the Construction PMI hit 62.6, significantly higher than May’s 60.0 and much higher than the forecast reading of 59.7. The readings had been slowly falling from February’s high of 64.6, so the unexpected growth was well-received by holders of the pound.
The report stated that employment in the building industry was increasing at its fastest pace since 1997, with Q2 growth in the sector expected to be at least 1%. Cable jumped on the release from 1.7147 to 1.7170, and GBP/EUR moved up from 1.2540 to 1.2570. Wednesday afternoon saw the US ADP Non-Farms release which showed strong job creation in America, and, printing 288k for June, was far higher than the 215k forecast.
Thursday morning saw the Aussie fall after a miserable Monthly Retail Sales release. June’s release saw a fall of -0.5% when zero growth was forecast, while May’s reading was revised downwards from 0.2% to -0.1%. AUD/USD, which had been trading at .9440, dropped through .94 to find support at .9385. Early in the UK session, we had the Services PMI print a slightly under-par 57.7. The survey’s authors were bullish about the UK economy, stating that they expected unemployment could drop from 6.6% to below 6% by year end and Q2 growth expected to be 0.8%. Later in the day, we had a stellar set of figures from the US.
First up, we had the Non-Farms Payroll smashing forecast by coming in at 288k, much higher than the 214k estimate. The accompanying Unemployment Rate release showed a drop to 6.1% when it was expected to hold steady at 6.3%. On the back of the news, the Dow Jones broke through the 17,000 mark for the first time ever! The dollar surged, with EUR/USD dropping from 1.3660 to 1.3595 immediately after the release. Cable, which had clawed back the losses from the under-par UK Services PMI, dropped from 1.7155 to 1.7115 where it found solid support. The Aussie and the Kiwi were sold off on the news, and AUD/USD dropped to a weekly low of .9335 while NZD/USD dropped to .8712. All this good US data has seen rate hike bets brought forward, with some economists now seeing the first likely to happen as early as Q1 2015. GDP for rest of the year is expected to be around 1% per quarter, and a possible increase in the pace of tapering is also now on the table.
Draghi went through the motions at his monthly press conference yesterday, saying nothing new and hammering home his dovish stance. He pledged to keep rates low for an extended period of time, confirmed that QE was still an option being considered, should inflation not pick up through the rest of the year, and reconfirmed an array on non-conventional policy tools were still at his disposal.
This morning we have seen German Factory Orders fall further than expected, dropping -1.7% for the month. EUR/USD has slipped further to currently trade at 1.3590. Cable hit another multi-year high overnight to reach 1.7178, although it has slipped back to currently trade at 1.7160. GBP/EUR hit the highest level since September 2012 this morning to briefly trade at 1.2621 (.7923) and currently sits at 1.2610 (.7930).
Further reading: Where is the fall of EUR/USD?
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