UK retail sales were found to have contracted -1.6% on the month in May, signalling that the strong levels of consumer spending that have supported the economy are likely coming to an end. Coupled with the deepening squeeze on wages this does not bode well for the outlook of the UK economy. As a result the Pound softened once again, particularly as market expectations for the Bank of England (BoE) policy meeting are limited. Should policymakers adopt a more dovish view at this juncture Sterling could be in for further weakness.
Demand for the single currency weakened in response to a disappointing narrowing of the Eurozone trade surplus, which fell from 22.2 billion to 19.6 billion in April. This added to worries over the resilience of the domestic economy, following a recent spate of weak data. Confidence was also limited by jitters ahead of the afternoon’s Eurogroup meeting, where finance ministers could approve the disbursement of the next tranche of Greek bailout funds. If the meeting proves a failure, however, the Euro could extend its slump sharply.
While markets had expected the Federal Reserve to raise interest rates at its June meeting the ‘Greenback’ trended higher against many of the majors on Thursday morning. Policymakers proved to be generally less dovish in tone than anticipated, raising expectations that the Fed could hike rates again before the end of the year. Even though recent US data has suggested that the world’s largest economy is in a less healthy state this was not enough to dampen the appeal of the US Dollar today.
An unexpected dip in the unemployment rate encouraged the ‘Aussie’ to strengthen sharply overnight. Despite the notoriously volatile nature of the labour market data this stronger showing still boosted confidence in the outlook of the Australian economy. With the participation rate pushing higher, indicating that a greater proportion of the population is economically active, the appeal of the antipodean currency improved further.
New Zealand Dollar
The first quarter gross domestic product report fell short of forecasts overnight, with growth only edging up from 0.4% to 0.5% on the quarter. Naturally this disappointment weighed on the New Zealand Dollar, putting an end to its bullish run. With risk appetite generally diminished the ‘Kiwi’ struggled to hold onto any particular momentum, although a positive showing from tonight’s manufacturing PMI could offer a fresh rallying point.
After a smaller-than-expected drawdown in US oil stockpiles the mood towards the commodity-correlated Canadian Dollar remained muted. Signs continue to point towards the global oversupply glut persisting for the foreseeable future, keeping Brent crude trapped beneath the US$50 per barrel mark. However, the ‘Loonie’ could be encouraged to strengthen across the board if the latest Canadian existing home sales figure indicates greater activity within the domestic housing market.
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