GBPUSD hits highs of 1.5553, pulls back this morning

June 11th: Highlights

• GBPUSD hits highs of 1.5553, pulls back this morning
• Merkel stance on Greece softening?
• NZ rate cut surprises market
• Yen rallies against sterling
• US showing clear economic growth

Sterling Comment

GBP strengthened against the US dollar yesterday after strong industrial production numbers suggested the manufacturing sector may not weigh on Q2 growth. Industrial output rose by 0.4% in April, which beat forecasts of a 0.1% increase. GBP/USD is currently trading around 1.5440.

The pound was trading higher against the Euro as investors are still feeling shaky and fragile over the single currency with the ongoing Greek saga. We are seeing £1 buying around 1.3725 EUR at the time of writing.

Both Osborne and Carney used the annual Mansion House dinner to outline some of the key initiatives for the year ahead. The key take-away was that Osborne plans to start the sale off the Government’s stake in RBS. At a loss. Carney called for a clean-up of the City with the headline of the ‘age of irresponsibility is over’. Bravo.

Greece

Progress? Well more rumours of progress at least. Speculation hit the wires suggesting that Chancellor Angela Merkel could be willing to make concessions to finally make a start. Of course, this has already been denied by German government figures, adding to frustrations over the ‘he said/she said’ nature of these reports for the outside looking in, but the age-old journalist’s favourite of ‘people familiar with the matter’ were quoted as saying that Germany may be prepared to endorse a Greek rescue payment in return for only one of the reforms from the creditors list of demands.

The only concrete development to report is that S&P downgraded Greece’s credit rating to CCC. Not swayed by any of the good news speculation, the ratings agency’s position is clear – they expect a default. But don’t forget how horribly wrong they were rating sub-prime investments, so that’s by no means conclusive.

Global Comment

So the graph below gives a great example of what can happen when the market is caught off guard:

Even a year ago, New Zealand was still hiking rates and although a rate cut has been considered for a while (they have tried verbal intervention already), NZ surprised everyone with an unexpected interest rate cut overnight, which really caught the market off guard. It is pretty clear from the reaction that the market was not positioned for this with the 2.8% swing on the GBP/NZD chart.

Korean decision to cut rates to 1.5% (from 1.75%) was largely expected though, but is being linked to the MERS virus. The virus, which has come over from the Middle East, is now impacting S. Korea (seeing quarantine and a number of deaths). The number of reported cases hitting 122 and there are fears that this could have a meaningful impact on consumption.

Further comments by Bank of Japan Gov Haruhiko Kuroda also caused a Greenback sell off. GBPJPY lost 1.25% to hit lows of 188.95 in early trade then regain some of its losses to stabilise at 190.57.

Have a great day!