Exchange Rate News Today: GBP Edges Higher on Financial Stability Report, Euro Softens on Grexit Potential and US Dollar Rallies on Manufacturing
Pound Sterling (GBP) Exchange Rate Forecast to Tick Higher despite Poor Manufacturing Growth
The British asset advanced versus many of its currency rivals on Wednesday after the British Financial Stability report showed Bank of England (BoE) officials were confident that the UK will be secure against any fallout from a Greek exit from the Eurozone. BoE Governor Mark Carney stated; ‘Events in Greece have tipped the balance to ‘the outlook has worsened’,’ but added that the UK was ‘relatively well insulated’ from the direct consequences of a Greek exit from the Eurozone.
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The Sterling appreciation has been particularly sluggish, however, thanks to less-than-ideal manufacturing data. The seasonally-adjusted Manufacturing PMI was forecast to increase from 51.9 to 52.5, but the actual result dropped to 51.4. Rob Dobson, Senior Economist at survey compilers Markit said: ‘The UK manufacturing sector had a disappointing second quarter overall. Growth trends in output and new orders were the weakest since the opening quarter of 2013, as a strong Sterling exchange rate and subdued demand from mainland Europe offset the continued solidity of the domestic market.’
Euro (EUR) Exchange Rate Forecast to Trend Lower as Greek Situation Hinders Investor Confidence
After Greece became the first developed nation to miss a payment to the International Monetary Fund (IMF) the Euro dived versus its peers as fears creditors won’t give any aid even if Greeks vote yes to austerity in the forthcoming referendum have stymied Euro investment.
The shared currency recovered slightly upon the news that Greek Prime Minister Alexis Tsipras was wrangling for a deal to avoid the referendum. However, optimism was short-lived after European officials dismissed the notion of discussing a third bailout deal ahead of Sunday’s referendum.
US Dollar (USD) Exchange Rate Forecast to Rally after Positive Data Stokes Rate Hike Bets
Positive domestic data has supported demand for the US asset on Wednesday as futures traders bring forward bets as to the timing of a Federal Reserve benchmark interest rate hike. Of particular significance was better-than-expected manufacturing output. The ISM Manufacturing PMI was forecast to increase from 52.8 to 53.2 in June, but the actual result reached 53.5. In a note previewing the economy this week, Credit Suisse wrote: ‘With global growth momentum currently rebounding, we anticipate ISM to continue to accelerate going into the summer. The new orders index, which tends to lead the headline number, printed a robust 55.8 last month. And although regional surveys have been mixed the general trend is clearly positive. Auto production schedules are also pointing to a strong pickup in June.’
The combination of improving employment change and manufacturing output has led futures traders to speculate that non-farm payrolls will improve. This will stoke rate hawks betting on a Federal Reserve interest rate hike before 2016.
The US Dollar advanced against both the Pound (USD/GBP) and the Euro (USD/EUR) during Wednesday’s European session.