High	Low			High	Low
EUR/USD	1.0993	1.0915		USD/ZAR	12.2835	12.2193
GBP/USD	1.5229	1.5192		GBP/ZAR	18.68	18.59
EUR/GBP	0.7227	0.7179		USD/RUB	54.39	52.22
USD/JPY	125.07	124.42		USD/ILS	3.8830	3.8583
GBP/CHF	1.4402	1.4308		S&P 500	2,115	2,108
GBP/AUD	1.9993	1.9726		Oil (Brent)	65.93	65.07

 

Strong manufacturing data from the US yesterday saw the dollar rally continue. The ISM numbers which were strong overall, but also in the key employment and prices categories which is a welcome relief after a recent spate of sluggish data in the United States. Couple this with the disinflationary state of affairs as illustrated by the core PCE data yesterday and we find a happy balance between solid growth and stable prices, a central bankers dream.

 

Talking about central bankers…there was a dovish speech from a key US policymaker last night, Boston Fed President Eric Rosengren, believes that conditions are not yet right for interest rate hikes in the US. His argument is two pronged:

• the first quarter was weak, and growth is still running below potential;
• and global risks do not support higher interest rates in the United States, the Eurozone being a particular concern.

All I can say is that fortunately he is not a voting member this year! Personally I think that a few small rate hikes won’t make much of an impact on solid US growth, but more importantly the US will have no wiggle room at all if the economy does hit the reefs in a few year’s time, if normalisation isn’t initiated as quickly as possible. Time will tell.

 

Across the pond, we also got some interesting European data, specifically the manufacturing PMI’s of the major economies, with France and Italy (laggards) impressing with improving conditions, while the UK and Germany looked more… so so. I would definitely characterise yesterday as strongly positive on the data front, all things considered.

 

Interest rates were cut by 25bps to 7.25% today, as expected, in India. This is the 3^rd cut this year, but the RBI has hinted that this is there will be a pause in the easing cycle. The objective is to encourage investment which has been sluggish. Somehow I suspect that the reasons for that don’t have much to do with interest rates, but they are doing what they can in the short term. It is up to Prime Minister Modi to facilitate an environment where corporate leaders are encouraged to invest in India’s future.

 

There was an emergency meeting in Berlin last night where the troika tried to iron out differences in approach and objective. Attendees included the German Chancellor, the French President, the President of the ECB, the Managing Director of the IMF and the European Commission president. There are growing fears about Greece’s ability to pay its debts. The troika is yet to release €7.2bn of bailout funds to the Greeks, and without it, it’s difficult to see how default and grexit can be avoided. The plan appears to be to present a final creditor position to the Greeks by the end of this week, which might explain some of the Greek confusion following recent negotiations, they’re probably hearing positive words from one member of the troika only to have their hopes dashed by another. I can only shake my head…

 

We get Eurozone inflation numbers later. The British pound has started the day weak, while the euro and Japanese yen are slightly stronger than the dollar. Tuesday’s often see trend reversals, so I wouldn’t be shocked to see some mild dollar weakness, but this is merely a bump in what we continue to maintain is a US dollar bull trend.

 

 

 

 

 

 

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	High	Low			High	Low
EUR/USD	1.0993	1.0930		USD/ZAR	12.2528	12.1370
GBP/USD	1.5306	1.5258		GBP/ZAR	18.72	18.52
EUR/GBP	0.7199	0.7155		USD/RUB	53.13	51.38
USD/JPY	124.35	123.93		USD/NGN	199.1	199.0
GBP/CHF	1.4464	1.4341		S&P 500	2,115	2,105
USD/ILS	3.8766	3.8613		Oil (Brent)	65.92	62.27

After claiming an agreement was imminent, sounds coming from the Greek government over the weekend show that was clearly never the case. Prime Minister Tsipras has described the requests made by the bailout monitors as ‘absurd’ and seems to be willing to further politicise the negotiations by characterising some of the requirements as ‘harsh punishment’. The situation looks bleak indeed. This week, Greece will have to pay roughly €300m back to the IMF, and bearing in mind that the last payment to the IMF was made by drawing down on Greek funds at the IMF, it’s hard to see how this can be done without assistance from creditors. Still, 5^th June, the payment date, is not seen as a particularly significant risk event as the consequences of missing payment are not considered significant. It is worth noting, however, that the month of June is riddled with repayment dates and meetings, and repayment dates and meeting… oh dear! All in all Greek liabilities over this period are far in excess of €1bn. If this is a game of brinkmanship, someone will have to back off in the next few weeks.

 

The dollar rally was slowed somewhat on Friday, with rather disappointing US data. Real consumer spending was slightly less than forecast in Q1, and weaker than the last quarter of 2014. On the other hand the GDP outcome was marginally better than forecast. The weak consumer data was also mitigated by good Michigan sentiment and expectations data, however it was clear that traders were predisposed to manage their risk into a weekend, hence the stall in dollar appreciation. We are already seeing renewed signs of dollar strength in this European morning. It really looks like the greenback wants to rally, and the unfolding Greek tragedy certainly supports the cause. In a short while, we’ll get a host of manufacturing PMI from European economies which should be a welcome addition to the macro debate and later on we will get data for one of the US Federal Reserve’s favourite inflation indicators, as well as another measure of consumer activity in the United States. Please be aware that a number of US monetary policymakers will make speeches later on today as well. As we are now in a period where normalisation is imminent, we would be best advised to carefully monitor Federal Reserve board member speeches. Any additional information about when interest rates will rise in the US will be carefully managed, and these speeches are often used to frame the issue for market participants.

 

We continue to look for dollar strength in the weeks ahead. It is already evident in the weakness of emerging currencies, combined with what we are observing amongst the majors. We believe that it’s set to get stronger. Watch this space!

 

 

 

 

DISCLAIMER

Any financial promotion contained herein has been issued and approved by ParityFX Plc (“ParityFX”); a firm authorised and regulated by the Financial Conduct Authority (“FCA”) as a Payment Services Institution with registration number 606416.  It is for informational purposes and is not an official confirmation of terms.  It is not guaranteed as to accuracy, nor is it a complete statement of the financial products or markets referred to.

Opinions expressed are subject to change without notice and may differ or be contrary to the opinions or recommendations of ParityFX. Unless stated specifically otherwise, this is not a recommendation, offer or solicitation to buy or sell and any prices or quotations contained herein are indicative only. To the extent permitted by law, ParityFX does not accept any liability arising from the use of this communication.

Follow our tweets @parityfxplc

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