Sterling inched up from a one-month low yesterday, drawing some support from a budget bill that was not as fiscally tight as many investors had expected, as well as strong numbers from the housing market. The pound was unmoved by the Bank of England’s decision to, as expected, keep its benchmark interest rate at the record low of 0.5 percent, as policymakers grappled with how to balance improving wage growth in Britain against more ominous signals from the global economy. The outlook for BoE interest rates hinges to a large extent on how rapidly British wage growth picks up. In the budget he presented on Wednesday, finance minister George Osborne announced it would now take four years, not three, to achieve his aim of turning Britain’s hefty budget deficit into surplus.
The government of Greece drafted a new proposal it hopes will convince creditors to let the country stay in the euro. The package of economic reforms and spending cuts, put together with help from France, was approved by a majority of the country’s Cabinet ministers and is due to be submitted by midnight Brussels time. The proposals are set to be discussed at a summit of European Union leaders Sunday to determine whether the country will get a new bailout, or be forced to leave the single currency. Although the odds of a so-called Grexit have climbed, “we continue to see Greece staying in the euro as marginally more likely, not least because the majority of Greeks prefer so,” Deutsche Bank analysts wrote in a note to clients. “Europe is intent on forcing an outcome either way.” Pressure has been mounting on Greece’s creditors to make the country’s debt more manageable, giving it a chance to rebound from a crisis that has erased a quarter of its economy.
The dollar remained broadly higher against a basket of other major currencies yesterday, even after data showed that U.S. jobless claims rose to their highest level since February last week as markets were jittery ahead of fresh reform proposals from Greece. The U.S. Department of Labor reported on Thursday that the number of individuals filing for initial jobless benefits in the week ending July 4 increased by 15,000 to 297,000 from the previous week’s total of 282,000. Analysts had expected initial jobless claims to fall by 7,000 to 275,000 last week. The greenback had briefly weakened after the minutes of the Federal Reserve’s June policy meeting released on Wednesday showed that policy makers need to see more signs of a strengthening U.S. economy before raising interest rates. The minutes also pointed to concerns over Greece’s financial problems, signaling that global market turmoil could derail the Fed’s rate hike plans if contagion spreads.