STERLING’S WOES GREAT FOR OUR EXPORTERS, POOR FOR WINTER SUN-SEEKERS
Recent nervousness and concerns over China are filtering through to the wider global economy as yesterday saw lacklustre services data not just from the US, but the Eurozone and in particular the UK which saw its lowest reading for the services PMI since May 2013. Sterling was subjected to fresh selling after the data on sentiment that the economy is slowing and new business growth hit its lowest level for 29 months. The net outcome was a general scaling back of expectations surrounding interest rate increases which curbed currency support and GBPUSD retreated from the 1.5200 level again and as low as 1.3475 on GBPEUR.
Eurozone finance ministers have urged Athens to swiftly implement the tough reforms at the heart of its huge bailout as new forecasts showed Greece’s economy stuck in recession well into 2016. Eurozone finance chiefs agreed on a list of reforms to be swiftly implemented by Athens to unlock a slice of its huge €86 billion EU bailout. ‘There is no alternative to fulfilling the commitments that have been taken with the European Union,’ said Pierre Moscovici, the European Commission’s top economic official.
EUR/USD: After moving higher in the European session, the Euro failed to make a fresh challenge on the 1.1300 area and was then subjected to renewed selling. Risk conditions were generally more favourable which triggered some fresh Euro-funded carry trades and pushed the currency weaker. An upward revision to the French PMI services data was offset by a weaker than expected outcome for Spain and Italy with the net result that there was a small downward revision from the flash estimate. Growth doubts continued to fuel the debate surrounding potential fresh ECB action.
GBP/AUD: Interest rates were kept at 2% despite the slowing growth in China, falling commodity prices, and continued deterioration in Australia’s terms of trade. The Reserve Bank of Australia’s (RBA) policy statement was pretty close to a reiteration of last month’s. If anything, the minor language changes only revealed that RBA “does not see the functioning of financial markets impacted by equity volatility” and also that regulatory measures are helping to contain risks that may arise from the housing market.