Liquidity in foreign exchange markets is likely to improve with several European countries back from a holiday. Market sentiment is improving after the release of a string of economic data in China suggested that global growth forecasts will not need to be revised down. The risk on environment is lending support to the euro and so-called commodity currencies despite the S&P rating downgrade to Greece’s sovereign debt rating.
Sterling
Sterling received no favours from an RICS house price survey that was released. The figures came in at -28 in May, which was a drop from last month’s release of -21. Any weakness from the release is likely to be short-lived as investors look forward to the CPI release. Forecasts see the inflation figure coming in at 4.5 per cent, which is in line with last month’s release.
US dollar
The dollar has found very little support. Economic data released in China has allowed investors in broader markets to take a “risk-on” approach to trade. Lacking fresh US economic data, the dollar’s direction has been driven by developments in China. The Chinese data release in the overnight session included CPI, PPI, industrial output and retail sales. The data showed that output and consumer demand were still strong enough to support global growth forecasts, but that inflation remains stubborn at 34-month highs and will need to be countered by tighter policy.
Euro
S&P has downgraded Greece’s sovereign debt rating to the lowest level of any country in the world. The move comes at the same time that Greece’s government is trying to push new austerity measures through Parliament. In essence, what the rating agency has said is that any form of a restructure, call it re-profiling or what have you, would in the view of S&P be a “de facto default”, which is exactly what the European Central Bank has said it wanted to avoid. Greece has lashed out saying that the downgrade is not taking into account the fiscal measures that are being taken to trim the country’s budget deficit.
Japanese yen
The Central Bank expanded its loan scheme at the policy meeting. The loan scheme was developed to support industries after March’s devast-ating earthquake. The Central Bank said that it would leave interest rates at 0.1 per cent in a unanimous vote.
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