Sterling exchange rates had a very positive day yesterday posting gains of 1% against the Euro and US dollar and over 1.5% against the Australian Dollar following better than expected Purchasing Managers Index (PMI) data from the service sector. UK PMI climbed to 56.9 in June from 54.9 in May taking growth to its highest level in two years and continuing the UK’s recent strong data (retails sales and manufacturing numbers in particular).
This will be good news for Mark Carney the new governor of the Bank of England who officially took up his post as head of the central bank on Monday. Today will mark the first interest rate decision with Carney at the helm and could make for some interesting movements on the currency markets. When he took over the role at the Bank of Canada in his first meeting he cut interest rates so is not afraid to impose himself early. Of course he has to convince the other 8 members of the MPC, and the majority rules, but it will be interesting to see the outcome. For me with the data being more positive lately I think today could be a bit of a non- event and would look for no change – but watch out for the minutes from the meeting in two weeks time.
Following the Bank of England decision at 12:00 we have our European counterparts releasing their decision at 12:45. Again I would expect no change but watch out for Mario Draghi’s press conference at 13:30. With the ongoings in Portugal (borrowing costs touched 8% yesterday as a second senior government minister resigned) the global market will look for another act of defiance from the ECB to lend support to the Euro zone. This could come as soon as today and lead to Euro strength this afternoon.
For anyone with a keen eye on the AUD, NZD and ZAR – rates shifted significantly yesterday following the Euro Zone woes. Portugal’s problems has brought Europe back to the minds of investors and global risk took a hit. Currencies offering higher yields and those that are commodity focused will often take a hit during a fall in investor risk appetite, this trend may continue for the short term. The Aussie also took a hit following comments from Glenn Stevens of the RBA that the AUD is still over valued, has further to fall and hinted and future interest rate cuts. I would look for more value from the AUD in the coming days and weeks.
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