Analysis / Finance / forex / trading

Sterling falls as Bund yields creep higher

One Pound
Sterling fell against the euro, which was boosted by higher European bond yields on Monday, extending two weeks of losses suffered on a sharp sell-off of euro zone bonds and a run of weaker-than-expected UK data. Figures released last week showed growth in Britain’s dominant services sector suffered its steepest slowdown in nearly four years in May, suggesting the economy might not recover as quickly as hoped after stumbling in early 2015. Inflation fell into negative territory for the first time since 1960, bolstering investors’ view that any rise in interest rates from the Bank of England was unlikely before the middle of next year. But investors will on Wednesday be focusing on BoE Governor Mark Carney’s annual Mansion House speech, which last year triggered a sharp and sustained rally in sterling when he unexpectedly indicated that interest rates would rise sooner than markets then expected.

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The second revision of first-quarter Eurozone GDP figures headlines the economic calendar in European hours. The release is expected to confirm flash estimates showing output added 0.4 percent in the first three months of the year. Absent a particularly sharp deviation, the outcome seems unlikely to generate a significant response from the euro considering its limited implications for near-term ECB monetary policy. The central bank seems to be on auto-pilot as it continues to implement its €60 billion/month QE effort through September 2016. Greece-related news-flow remains in focus for the single currency, with traders keeping a close eye on commentary from both Athens and the creditor side of negations for signs of progress.

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Financial markets will continue to digest the improvement in the Non-farm Payrolls report on Friday which drove a stronger dollar once more. The report will now stoke up the debate over the possibility of an October or even September rate hike. Equity markets are in a bit of a quandary now as the yields on Treasuries continue to push higher and the concerns over the shock of a potential rate hike, hold back some of the buyers. Markets were mixed into the close on Wall Street on Friday, mixed in Asian trading overnight and again there has been a mixed start to proceedings in Europe today. There is very little in terms of economic announcements to drive markets today so once more the supranational developments can be a driver. News out of the G7 could be worth watching out for, whilst any developments over Greece could also be market moving.

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