rahul.khanna's picture

The Economic Outlook for the Currencies

US economic data is likely to be the key driver for the FX markets today. ADP employment change and ISM Manufacturing PMI comes out at 1215GMT & 1400GMT respectively. US front end yields have come off as markets expect a delayed Fed lift off due to the current sovereign stress in Europe. However, better than expected economic data this week will revive hopes of a Fed lift off this September.  

Swedish and UK Markit/CIPS manufacturing PMI (June), are among the number of PMI’s that were released overnight/early morning, and have come in below expectations. SEK has since weakened slightly, but a significant move in SEK is likely to be tempered, ahead of the Riksbank’s rate decision on Thursday. Stay long EURSEK, given Riksbank’s willingness to prevent a SEK appreciation vs. the EUR. GBPUSD has also dipped following the PMI release, but US data, out later today, will hold the key. Cable is likely to dip further if US Data surprises to the upside.

Greece has failed to pay IMF EUR 1.5bn on Tuesday, but that seems irrelevant now, because the main issue is whether or not the Greek electorate will accept the terms of a Greek bailout in the referendum on Sunday. Accepting the terms of the bailout will only be a temporary solution, as more austerity is only going to worsen the economy in Greece. However, acceptance of the bailout conditions will be positive for the EUR, as the immediate fears over Greece will subside. Until a solution is reached, stay long USD, especially if US economic data improves.