UK Stays in Holding Pattern
The Tory Government is making a concerted effort to restore UK finances after multiple years of government deficit spending in a bid to improve the outlook for expenditures. The budget released by Chancellor of Exchequer George Osborne tackles a host of problems in the economy and slashes spending while also focusing on reducing taxes amid the strongest growth amongst the G-7 nations and subdued inflation. The Bank of England abstained from shifting monetary policy measures, leaving the benchmark interest rate unchanged at 0.50% while maintaining the asset purchase program at GBP 375 billion as the Central Bank reinvests proceeds from maturing financial instruments on the balance sheet.
Greece has conceded, offering creditors a reform proposal closely resembling the offer made to the nation before the referendum on the future of Greece was called. Creditors previously shelved the proposal in an effort to wait out the referendum outcome. However, this has led certain creditors, such as Germany, to demand more concessions than previously stipulated in an effort that closely resembles collective punishment. With this weekend’s deadline to form a deal with creditors, Greek pensions and other welfare spending look to be under the knife as the nation grapples with bank holidays and capital controls. The latest bid to stay in the Euro will culminate in a decision over the weekend by creditors to accept or reject the latest set of proposals.
The IMF yesterday unsurprisingly moved to downgrade the outlook for global growth amid slowing expansion in the United States and growing downside risks from Greece and China. Estimates for 2015 growth were revised from 3.50% to 3.30% while 2016 was left unchanged at 3.80%. The IMF is notorious for overestimating global economic potential and is likely to revise the expectations lower again before the year is over. Risk assets have nevertheless managed to bounce, aided in part by the increased accommodation from Chinese government and the possibility that Greece will manage to secure a bailout loan from European creditors before the nation is forced to switch to a parallel currency and default on obligations. Equities are continuing to bounce with commodities as hope for a better outcome remains high.
The renewed bout of risk-aversion gripping global financial markets has seen the US dollar appreciably rise versus peers. Despite the brief pullback in strength owing to optimism surrounding the potential for a Greek deal and increased efforts to prop of Chinese stock markets, the dollar is poised to rise further should the Federal Reserve stick to its rate hike timeline. Although retreated from earlier levels, the USDCHF is currently trending higher in an ascending triangle technical pattern which has a bullish bias. Formed by the intersection of a near-term uptrend and resistance at 0.9517, the USDCHF pair continues to consolidate with any move above the resistance level considered a breakout trade to be accompanied by increased momentum higher. Should the pair break below the uptrend line though, it could be an indication that the trend is reversing lower.