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Can Cable Remain Bid as UK Data Disappoints?

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Top Stories

  • UK IP/MP misses PPI softer
  • EZ French IP contracts, Greek woes weigh
  • Nikkei up 0.50% Europe off -0.36%
  • Oil at $101/bbl
  • Gold at $1545/oz.

Overnight Eco

  • JPY Tertiary Industry Activity m/m 2.6% vs. 2.8%
  • JPY CGPI y/y 2.2% vs. 2.4%
  • EUR French Industrial Production m/m -0.3% vs .0.4%
  • EUR German Final CPI m/m 0.0% vs. 0.5%
  • GBP Manufacturing Production m/m -1.5% vs. 0.0%
  • GBP PPI Input m/m -2.0% vs. -1.2%
  • GBP Consumer Inflation Expectations
  • GBP NIESR GDP Estimate n/a
  • GBP Industrial Production m/m -1.7% vs. 0.1%
  • GBP PPI Output m/m 0.2% vs. 0.3%

Event Risk on Tap

  • USD Import Prices m/m expected at -0.6%
  • USD Federal Budget Balance expected at -157.6B
  • CAD Employment Change expected at 23.4K
  • CAD Unemployment Rate expected at 7.6%
  • CAD Labor Productivity q/q expected at 0.5%

Price Action

  • USD/JPY hovers near 80.00
  • AUD/USD bounces off support at 1.0600
  • GBP/USD falls through 1.6300 on weak IP/MP soft PPI
  • EUR/USD Greek woes take it below 1.4500

@import url(/css/cuteeditor.css); Risk FX came under selling pressure in Asian and European trade on the last working day of the week as the seemingly intractable problem of the Greek sovereign debt came back to the forefront pushing the EUR/USD to a low of 1.4445 in morning European dealing. With ECB rate hike news now processed by the market, attention once again turned to the issue of how to handle the credit crisis in Greece.

ECB Vice -President Vitor Constnacio echoing comments made yesterday by President Trcihet reiterated the central bank's opposition to any sovereign debt restructuring of Greek debt and called for the creation of Resolution Fund that could take swift action on such matters in the future. Arguing for more activist policy role for the ECB Mr. Constancio noted that a single focus on price stability was not enough for a robust policy strategy.

The ECB's position stands in stark contrast to opinions expressed by the German finance minister Wolfgang Shaeuble who stated that restructuring of the Greek debt was "unavoidable". The difference in opinion between German fiscal officials and European monetary authorities regarding the sovereign debt problem in Greece has stalled the resolution of the problem and put fresh strains on the EUR/USD in Asian and early morning European trade today.

As we noted earlier, "With Greek debt due for rollover by the middle of July and 2 year bonds trading at 25%, the credit markets are clearly pricing in a very strong chance of default and restructuring. If the disagreement between European fiscal and monetary policymakers lingers for much longer, time may run out for a comprehensive solution which in turn would create further downside pressure on the euro as fears of contagion spread "

Meanwhile in UK the economic data was markedly worse than forecast with both Manufacturing and Industrial Production contracting far rose than forecast while PPI data was softer. Manufacturing Production declined by -1.5% versus 0.0% eyed while Industrial Production sunk by -1.7% versus 0.1% projected. The impact of the Royal wedding and the Japanese earthquake were the primary drivers of the decline which augurs poorly for Q2 GDP growth for UK.

On the inflation front input price by manufacturers posted their steepest drop in more than two year as PPI contracted by -2.0% versus -1.2% forecast. In addition consumer inflation expectations also dipped to 3.9% from 4.0% the period prior. The news suggests that the BoE will now have less pressure to tighten policy in the near future, with credit markets expecting rates to remain stationary for the rest of the year. Cable dipped to 1.6240 ahead of the news but recovered somewhat on short covering in the aftermath of the release.

Sterling has remain remarkably resilient in the wake of persistently weak UK economic data holding well above the 1.6000 level over the past several weeks. However, evidence continues to build that growth in the UK economy is sputtering in Q2 of this year and unless the markets see some signs of pickup in demand, the path of least resistance in the pound is likely to the downside, especially if the lackluster economic performance spurs calls for a fresh round of QE. This week's comments by Moody's about the possible threat of the country's AAA rating could become a more serious concern for the market if UK economy continues to disappoint.

FX Upcoming

Currency GMT EST Release Expected Prior
USD 12:30 8:30 Import Prices m/m -0.6% 2.2%
USD 18:00 14:00 Federal Budget Balance -157.6B -40.5B
CAD 11:00 7:00 Employment Change 23.4K 58.3K
CAD 11:30 7:30 Unemployment Rate 7.6% 7.6%
CAD 12:30 8:30 Labor Productivity q/q 0.5% 0.5%

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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