Pound: Sterling fell broadly on Monday after data showed UK manufacturing activity shrunk in July for the first time in two years, a reminder of difficulties the UK economy faces which are likely to keep the currency on the ropes. Traders said the pound came under further pressure in the afternoon dealing as safe haven currencies such as the Swiss franc and the yen outperformed in thin trade. Gilt futures rallied as investors pushed back the chances of a UK interest rate hike even further following the UK data, with some increasingly looking for more monetary stimulus if data continues to deteriorate. Investors are now almost fully pricing in a quarter percentage point rate hike in December 2012, whereas late last month they expected a rate rise in November 2012. Sterling fell to as low as $1.6284 against the dollar in afternoon trade, having earlier hit a two month high of $1.6477 when riskier assets staged a relief rally after US President Barack Obama said a deal to raise the US borrowing limit had been agreed. It wasn't all bad news for Sterling as it touched a two month high against the euro this morning, trading near the 1.15 handle. Data 09.30: Construction PMI.
Euro: Europe yesterday showed signs that confidence was unravelling after a tepid response to Greece’s latest bailout, as the tiny Eurozone island of Cyprus swung closer to a bailout. Traders were even less impressed with the euro than with the US dollar: the single currency fell by more than one percent against the greenback throughout yesterday. It also set a new record low of less than SFr1.1 against the Swiss franc. European jobs figures gave little cause for joy: the overall unemployment rate stayed at 9.9 percent but the numbers of unem¬ployed workers rose by 18,000. Cyprus also stirred up unease in the bloc after its biggest bank, the Bank of Cyprus, said there was an ‘imminent threat’ of the country ‘joining the European Union support the mechanism’.
No major data due today.
Dollar: The House of Representatives approved legislation to raise the US debt limit by at least $2.1 trillion and cut federal spending by $2.4 trillion of more, one day before a threatened default. The house voted 269-261 for the plan negotiated by leaders and President Barack Obama over the weekend. Ninety-five Democrats voted in favour and 66 Republicans in opposition. The measure goes to the senate for final vote planned today. Final approval in the Senate would send the debt limit measure to Obama for his signature and conclude a months long battle over raising the $14.3 trillion debt ceiling and reining in government spending. The upper chamber vote on the deal at 12:00 local time today. The dollar traded at 1.44 against the euro for most of London trade before making significant gains in late afternoon to 1.42 and has continued to hold those gains overnight.
No major data due today.
General:
• The RBA has moved to leave rates on hold at 4.75% as was widely expected going into today’s rate de-cision. The central bank maintained the new, more neutral, outlook in their accompanying statement not¬ing increased downside risks to global growth from Europe and the US as well as the mild slowdown that China is experiencing.
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GBP/USD 1.6270
GBP/EUR 1.1470
EUR/USD 1.4180
GBP/JPY 125.65
GBP/AUD 1.4970
GBP/NZD 1.8635
GBP/ZAR 10.95
GBP/CHF 1.2670
GBP/CAD 1.5570
GBP/SGD 1.9620
GBP/THB 48.35
GBP/HKD 12.68
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These rates are for indication purposes only.
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