Intraday Market Thoughts

GBP Awaits Fisher & Fiscal Balance, EUR Onto ZEW, Greek Confidence

by Kyle Morrison
Jun 21, 2011 6:58

UK Public sector borrowing expected to rise, RBA minutes, German ZEW economic sentiment and Greece no confidence vote all point to a volatile today. Fitch warns Greece and US on ratings outlook.

Given the recent focus on the single currency and Greeces woes the markets focus could well shift back towards the UK this morning and the pound as public sector borrowing for May is expected to show the continuing challenges faced by the UK government in getting public spending under control. The recent austerity measures introduced by the coalition government have taken some of the heat off the UKs own fiscal problems but after Aprils poor number the focus has shifted marginally back towards the Chancellors ambitious deficit reduction targets. Aprils numbers came in at a record high for that month of 7.7bn and it seems likely that Mays will probably be worse with expectations of 16.5bn.

GBP has not fared as well as it might have done, given the problems in Europe, and another miss here could well ratchet up the pressure ahead of tomorrows Bank of England minutes. GBPUSD awaits a speech from noted BoE dove Paul Fisher at 8:00 am GMT, which could potentially BOOST EURGBP.

This mornings release of the latest RBA minutes for June showed that the central bank remained in no hurry to raise interest rates on the basis that the recent data had not given them any reason to do so, and citing concerns with respect to the global economy and the sovereign debt crisis. The bank did note that the risks for interest rates remained tilted towards the upside from their present levels of 4.75%. The Australian dollar continues to find support between 1.0470 and 1.0500.

With the focus remaining on the problems in Greece, extra attention will be on German and Eurozone ZEW economic sentiment for June, with expectations for the German figure being pretty low with a figure of -3 being touted, a decline from Mays 3.1, while the Eurozone figure is expected to decline from 13.6 to 6.1. Todays main focus will be the Greece no confidence vote which is due late tonight and the vote looks evenly balanced with markets expecting the Greek Prime Minister to scrape through, just. Soon afterwards the vote on the austerity package will then take place.

With EU leaders continuing to make soothing noises with respect to a solution for Greece, the single currency has continued to find support above the 1.4150 level and 100 day MA.

Ratings agency Fitch also increased the pressure overnight warning that even a voluntary restructuring of Greek debt would be considered a credit event, and rendering the recent compromise agreed by EU leaders completely hollow. At the same time the agency warned that a failure to raise the US debt ceiling would also trigger a ratings downgrade, however they such an action would be avoided and the ceiling to be raised.

US existing home sales for May are expected later this afternoon ahead of that start of the latest FOMC meeting.


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