Both Sterling and the USD remain weak against Euro...

Week Commencing Monday 31st July 2017

 

UK: Growth upgraded but still lagging behind a bullish EU!

ONS forecasters have upgraded their assessment of the UK economy for the second quarter, revising up their three months to June estimate to 0.3 percent from 0.2 percent.

The Office for National Statistics (ONS) said that growth in the three months up to the end of June was driven by services, which expanded by 0.5 per cent compared with 0.1 per cent growth in the first quarter of the year. Overall, the data, which was in line with consensus forecasts, however still meant that the UK the worst performing economy in the EU at the start of the year. That figure also represented a dramatic slowdown from the 0.7 percent growth in the final quarter of 2016, and the 0.5 percent growth in the quarter immediately following the referendum.

Although the second quarter GDP matches the Bank of England's May inflation report, the uninspiring growth in the first half of the year, half that seen in the latter part of 2016, will mean hitting the full year prediction for GDP growth of 1.9 percent will require a steep improvement in the second half of the year.

In further news, Employment rate reached a record high of 74.9 percent during the second quarter, while total real wages fell 0.7 percent compared with a year earlier, which was the most since August 2014.

Greece: First Greek Bond sale creates 5th largest bond market in EZ!

Greece’s new soon to be sold bond is already the fifth most traded euro-denominated sovereign debt in Europe, as Athens marks a successful return to the markets for the first time in three years this week.

The sale of a new five-year bond on Tuesday was a way for Prime Minister Alexis Tsipras to show that Greece can cut its debt-servicing bill and carve out a path to exit its bailout program. Of the 3 billion euros in bonds sold, just under half was fresh money with the remainder exchanged for older notes maturing in 2019.

US investors bought 44 percent of the new bonds, while Greeks took 14 percent. In contrast, Greek investors accounted for 75 percent of the bond-switch. Greece is now into its third bailout loan programme. The main source of finance has been the Eurozone - for the first loan the money came from other governments that use the currency, and EU bailout agencies supplied funds for the second two.

In total Greece has received bailout payments of more than a quarter of a trillion euros, and there's as much as 47bn euros more available over the next year.

 

FX Forecast

Sterling (GBP) - Sterling remains under pressure versus the Euro as economic fundamentals continue to push EU numbers skywards. We expect continues declines, albeit marginal declines, against the Euro as we see BoE numbers released to the market. Expect 1.11 to be targeted this week, which the Dollar should offer sizable resistance around 1.32.

US Dollar (USD) - The Dollar continues to shift lower as fears continue to mount of Janet Yellens future at the Fed, along with a deteroation of the Fed’s rate hike pathway. We expect EUR/USD to continue to climb, potentially pushing 1.18 this week. GBP/USD continue to hover above 1.30, with 1.32 potentially on the cards.

Euro (EUR) - The Euro continues to assault most major currencies on a raft of exciting economic data. We expect decent numbers this week, and as such expect further gains against both Sterling and the Greenback.

 

Economic Calander for the Week

UK Data:

We have a busy week for the UK with the Bank of England set to release their minutes on Thursday. Mark Carney’s press conference is the one to watch and any comments on either Brexit or the lacklustre economic growth we have seen is likely to move markets.

We expect no shift in voting intentions within the committee, with 3 voting for a rate hike while 5 voting against. We also have the PMI’s to watch out for, with Manufacturing expected to come in flat at 54.3, Construction to come in down at 54.0 versus last months 54.8 and finally Services should rebound slightly at 53.7.

US Data:

We start the Dollar week with ISM Manufacturing PMI on Tuesday, where we expect a marked decline from 57.8 to 56.5. This will also lead to a ISM Prices Paid for July index to increase from 55 to 56. Moving to Friday, Nonfarm Payrolls for July should fall from 222k to 183k, while the unemployment rate will continue to decline, hitting new lows of 4.3 percent.

EU Data:

We have a busy week for the EU with EZ GDP the highlight on Tuesday. We expect to see combined EZ GDP posted at 0.6 percent for the second quarter, drastically higher than the UK’s print. In other releases, we expect CPI to come in at 1.3 percent for the month, while we await the notes from the ECB meeting on Wednesday.

 

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