European currencies, including the Euro, Sterling and Swiss Franc, yesterday made decent gains versus the Dollar which nevertheless continues to appreciate against the Brazilian Real and in particular the beleaguered Mexican Peso. Service sector Purchasing Managers Indices (PMIs) rose briskly in the US and UK and were broadly unchanged in the Eurozone, providing some relief that global economic growth may be broadly unchanged in Q2 at around 3.7-3.8% yoy.
Sterling also benefited from a sound rebound in retail sales in May according to BRC data, with the value of total retail sales rising 4.1% yoy. Markets are once again considering the possibility of the Bank of England hiking rates at its August meeting, pricing in a probability of almost 50%. Nevertheless the Sterling Trade-Weighted-Index remains broadly in the middle of a 1%-wide range in place since early May and may lack direction until there is greater clarity on the terms and conditions of the UK’s new relationship with the European Union.
The Australian Dollar has overnight appreciated to 0.765 versus the Dollar, its strongest level since 23rd April, following the release of stronger-than-expected Q1 GDP growth. GDP growth doubled to 1.0% qoq from Q4 2017, taking the year-on-year growth rate to a two-year high of 3.1%. But with the Reserve Bank of Australia seemingly in no rush to hike interest rates – due to still modest wage growth and concerns about the property market – further gains in the Australian Dollar are more likely to be moderate.
