Market News & Insights
15 July 2015

Carney Jumpstarts GBP With Rate Hike Talk

EUR/USD 1.1023
GBP/USD 1.5648
GBP/EUR 1.4198 (0.7045)
EUR/CHF 1.0423
GBP/CHF 1.4797
GBP/AUD 2.0976

Sentiment continues to be dictated by Greece it would appear, as questions are raised as to whether the Greeks can/will implement the required reforms, while even PM Tsipras admits he doesn’t believe in the measures, but signed to avoid disaster. Greek banks will remain closed through June 16th, while much of today we will have eye’s on the Greek parliamentary vote to push through reforms. This has resulted in the day kicking off to a somewhat uncertain start following two days of European stocks rallying after the weekend’s summit. Stocks in the US followed Europe higher yesterday despite some weaker than expected data during the US session. In currency markets GBP was an outperformer on the day following comments from the BOE’s Mark Carney suggesting the UK is getting closer to interest rate hikes, the USD was a marginal loser on the day while in overnight markets the AUD was an outperformer following better than expected Chinese GDP figures, industrial output and retails sales data, helping improve demand for the AUD due to Australia’s exposure to Chinese growth.

With everything that has been going on in Greece and China over the last couple of weeks there has been a lot less attention focused on the more fundamental data coming from global powerhouses. The UK has been tipping along in the background, somewhat on the outskirts of Greek risk, yet still exposed but overall the UK economy continues to show signs of some consistency. Inflation continues to be the bugbear however, yesterday’s release of CPI figures once again saw a slowdown in price growth, the core reading growing just .8% vs .9% expected year on year while the headline figure dropped back to 0% from .2%. This did not stop the BOE’s Mark Carney setting GBP hawks pulses racing as he suggested the UK are moving closer to rate hikes. Now in my view this is obvious, unless the BOE decide to push out there 2016 rate hikes guidance then every day passes brings us closer to UK rate hikes, albeit slow and gradual hikes. Employment and wage data from the UK highlight this morning’s economic calendar releases and most focus will be on wage growth, with unemployment expected to remain at 5.5%. GBPUSD tested higher through yesterday but fell short of testing 1.5700, while the EUR remained under pressure from the pound, pushed back towards .7000 but failing to break below. Confirmation earnings continue to grow may well see these key levels broken as GBP demand grows.

The greenback struggled through yesterday’s session as retail sales were weaker than expected, falling into negative growth for the first time since February. This somewhat knocked the wind out of the USD’s sails, with some calling for September rates hikes, every weak piece of data over the next two months will drive another nail, pinning those rate hike expectations down until 2016. We may get another taste of Fed outlook on this but I still feel they have been very consistent in what they are saying, Janet Yellen will deliver her semi-annual testimony to the House Financial Panel later today. The Fed has said they are looking at raising rates, should the data be supportive of such. I do not expect this to change but certainly ongoing Eurozone risk, coupled with concerns on China, should see the Fed continue to take a very cautious approach to hiking rates. There will be several other Fed speakers crossing the wires later this evening but I prefer to judge the data rather than the comments these days.