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Pound Rallies Strongly on Positive UK Production Data, New Zealand Dollar Bullish after RBNZ Comments

Published: 7 Jul at 2 PM Tags: Euro, Dollar, Pound Sterling, America, UK, Eurozone, Australian Dollar, New Zealand Dollar, Canadian Dollar, Australia, New Zealand, USA, Canada, Germany, Italy,

Pound Sterling
The mood towards the Pound turned rather optimistic this morning, with investors encouraged by the latest raft of UK production data. Industry growth continued to pick up in May, suggesting that the economy had been in a robust state ahead of the EU referendum. However, Sterling’s resultant gains may prove limited thanks to the likelihood that production has since faltered as a result of Brexit uncertainty. With jitters and uncertainty still dominating the outlook of UK economy it seems likely that this rally will ultimately prove fleeting.

Euro
Signs of economic slowdown continued to plague the single currency, as German Industrial Production unexpectedly contracted on the year in May. Activity in the Eurozone’s powerhouse economy seems to have faltered in the second quarter, even before the Brexit vote, which has given investors little reason to favour the Euro. Worries over the fate of the Italian banking sector have also been weighing on sentiment, with the future of the currency union seeming somewhat shaky at this juncture.

US Dollar
Although markets had anticipated that the Federal Open Market Committee (FOMC) would take a more measured view on monetary policy the dovish tone of the June meeting minutes was still something of a surprise. With investors pushing back their expectations for the date of the Fed’s next interest rate hike the ‘Greenback’ slumped against many of its rivals, lacking particular support from safe-haven demand. Nevertheless, confidence in the US Dollar could pick back up if tomorrow’s Non-Farm Payrolls report proves encouraging.

Australian Dollar
Worries over the narrow result of the federal election have weighed on the ‘Aussie’ since the weekend, with the ruling coalition still shy of a majority despite inching closer. This uncertainty somewhat muted the reaction to a far better-than-expected Australian Construction PMI, which jumped from 46.7 to 53.2 in June. In spite of this latest sign of economic strength, however, S&P’s downgraded Australia’s AAA credit rating overnight, citing concerns with the latest budget and weakening the antipodean currency further.

New Zealand Dollar
Demand for the ‘Kiwi’ strengthened sharply after a speech from Reserve Bank of New Zealand (RBNZ) Deputy Governor Grant Spencer. Speaking on the possible overheating of the domestic housing market, Spencer indicated that the bank could introduce new measures to curb rising prices before the end of the year. This was seen to diminish the likelihood of an imminent interest rate cut from the central bank, prompting investors to pile back into the New Zealand Dollar on Thursday morning.

Canadian Dollar
Confidence in the ‘Loonie’ was not particularly high ahead of the latest US crude oil inventories report, in spite of expectations that stockpiles will have fallen further over the last week. While markets seem relatively assured that the impact of recent uncertainty will be minimal for the Canadian economy risk appetite remained generally reduced. The Canadian Dollar was undermined by a weaker than forecast merchandise trade deficit, which reflected poor trade conditions and signalled greater domestic weakness.
As of Thursday, 7th July 2016, the Pound Sterling currency rates mentioned within this news item were as follows:

GBP EUR exchange rate was 1.1653, GBP USD exchange rate was 1.2887, GBP AUD exchange rate was 1.7223, GBP NZD exchange rate was 1.7847, and GBP CAD exchange rate was 1.6764.
Dominic Lee About Author: (372 Posts)With over ten years experience as an economist – including four years spent as a chief economist with a major currency broker – Dominic has acquired a wealth of knowledge which he uses to forecast market movements. Dominic now works as an independent business advisor and writes for several financial publications.

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