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    European Session – Sterling outperforms after BoE Governor comments on rates, dollar briefly hurt by soft US retail sales

    Sterling was one of the best performing major currencies against the dollar today after it jumped to a one-week high on hawkish comments made by Bank of England Governor Mark Carney. Delivering a testimony at the UK Treasury Select Committee in London today, Carney mentioned that the time for a rate hike was moving closer. Interest rates have been held at a record low 0.5% since March 2009.

    Cable surged to 1.5602 after Carney’s comments to reverse earlier losses when it fell to a low of 1.5449. Markets also shrugged off earlier data that showed soft UK inflation figures. Annual CPI fell to 0% from 0.1% in May. The figure was within forecasts but the month-on-month rate of 0% was below estimates of 0.1%.

    The pound extended even higher to 1.5634 after the dollar was weakened by data showing US retail sales dropped unexpectedly in June. The volume of sales last month fell 0.3% after a 1% increase in May, compared to forecasts for a 0.2% increase. Meanwhile May’s retail sales were revised down to 1.0% from 1.2%.

    The weak US data pressured the dollar versus the yen and pushed it below the 123.00 level to a low of 122.91 yen. It was able to recover and move back up to 123.34.
    The turn in the dollar in the US session allowed the euro to rise to peak of 1.1083, moving off a day’s low of 1.0964.

    The euro remains vulnerable ahead of a Greek parliamentary vote on reforms that Greece’s creditors demanded in exchange for a bailout worth 86 billion euros over three years. The deadline to legislate these reforms, which include pension and sales tax reforms, is on Wednesday. Passing the vote is an immediate risk for now as many MPs within Tsipras’ Syriza party are opposed to the austerity measures. Meanwhile, the country’s banks remain closed as recapitalization plans are being discussed.

    Data out of Europe today include the German ZEW which showed economic sentiment deteriorated further in July as the index dropped to an eight-month low of 29.7 from 31.5 in June.
    The main focus of the currency markets will be on upcoming GDP data from China early on Wednesday, followed by important UK employment data. Then all eyes will be on Fed Chair Janet Yellen’s testimony on the Semiannual Monetary Policy Report before the US House Financial Services Committee. Investors would like to see if any hints would be made about the timing of the first rate hike.

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