Analysis / Daily / Finance / forex

Euro In Stasis Ahead of Greek Referendum

One Pound

Sterling fell against the dollar and the euro on Wednesday, after data showed British manufacturing growth unexpectedly slowed to its weakest rate in more than two years in June. The Markit/CIPS manufacturing purchasing managers’ index (PMI) fell to 51.4, below a Reuters poll that had predicted a slight improvement to 52.5 though still above the 50 mark that separates growth from contraction. Sterling fell to $1.5647, down 0.4 percent on the day, from around $1.5710 beforehand. On Monday the BoE’s chief economist, Andy Haldane, said a strong pound was likely to weigh on growth over the next two years. Sterling gained around 2 percent in June on a trade-weighted basis to hit a seven-year high, bolstered by expectations that the BoE may start raising rates towards the end of this year. The shift in market expectations to the last quarter of this year from the second quarter of 2016 happened in the middle of June after data showed British wages grew at their fastest rate in nearly four years in April amid signs that the labour market was continuing to pick up.

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The euro has traded between small gains and losses in today’s Asian sessions as investors awaited a weekend referendum on the debt bailout package. Speculation that Greece would cancel a snap referendum due to be held on July 5 on whether to accept the terms proposed by lenders for extending the country’s bailout was denied by Prime Minister Alexis Tsipras. Tsipras sent new proposals as part of a request for a third bailout, indicating that he was prepared to accept the majority of spending cuts demanded by the country’s creditors. But German chancellor Angela Merkel said Wednesday there will be no negotiations on a new bailout for Greece before Sunday’s referendum. On Wednesday Greece became the first developed country to default on the International Monetary Fund after its second bailout program expired late Tuesday. The IMF confirmed that the Greek government failed to make a scheduled €1.6 billion loan repayment. The fund said Greece can now only receive further funding after its arrears are cleared. Greece asked for a last-minute repayment extension on Tuesday, which the fund said it will consider “in due course.” EUR/USD changed hands at 1.1052, flat whilst against Sterling GBP/EUR is trading around 1.4097.

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The U.S. Dollar Index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was flat at 96.48. Overnight, the dollar remained broadly higher against a basket of other major currencies on Wednesday, after the release of upbeat U.S. jobs and manufacturing data and as investors remained cautious amid ongoing Greek debt concerns. The Institute for Supply Management said on Wednesday its index of purchasing managers rose to 53.5 last month from 52.8 in May. Analysts had expected a more modest uptick to 53.1. Separately, payroll processing firm ADP reported on Wednesday that U.S. non-farm private employment rose by 237,000 last month, above expectations for an increase of 218,000. The economy created 203,000 jobs in May, whose figure was upwardly revised from a previously reported increase of 201,000.

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