The EUR/USD rose above the 1.4300 figure in Asian and early European trade spurred higher by growing confidence that Greek Prime Minister George Papandreou will be able to pass the austerity legislation in Parliament, while economic data from Germany surprised to the upside helping to lift risk appetite. Cable however was mired under the 1.6000 level as weaker Q1 GDP readings and wider Current Account report capped any rally in the pair.
In Greece debate continued ahead of the crucial vote on austerity scheduled for tomorrow, with much of the country now on general strike as unions protested the proposed measures. Some analysts have estimated that the austerity cuts could be as large as 2000 euros per family per year - a massive hit to aggregate demand that will no doubt hurt growth going forward.
Nevertheless, most analysts believe that Mr. Papandreou will be able to squeeze by with a yes vote, aided by the opposition New Democratic party. On Monday ND deputy Elsa Papdimitriou indicated that she may vote for the austerity measures despite the reservations of her party, stating that now was the time to put the good of the nation above party interests.
In economic news German GFK Consumer Sentiment reading for July printed much better than forecast at 5.7 versus 5.3 indicating that the booming economy within Europe's core is having a positive impact on the consumer psyche despite the turmoil created by the peripheral debt crisis. The data showed improvement in all sub-indixes with economic expectations rising to 50.3 vs. 46.1 in May, income expectations climbing to 44.6 from 25.9 while propensity to buy increased to 35.1 vs. 31.5.
The positive news on the consumer sentiment front could translate into better results in German Retail Sales which has been highly disappointing in Q2 of this year, contracting for two out of the past three months. German Retail Sales are projected to rise 0.7% versus 0.3% the month prior. The improvement in GFK Consumer sentiment index also hints at continued strength in German labor markets with unemployment expected to decline another -17K from -8K last month.
The data was not nearly as supportive in UK where the Q1 GDP printed at 1.6% vs. 1.8% eyed while the Current Account blew out to -9.4B vs. -5.0B projected. The breakdown of data showed the first decline in Industrial Production since Q3 2009 while disposable income fell for the second consecutive quarter. The news confirms the downward bias of the BoE and unless Q3 data begins to show marked improvement in overall economic activity the UK central bank is likely to remain stationary for the rest of the year. Cable fell towards the 1.5950 level in the aftermath of the report and threatens to drop through the 1.5900 figure as the day proceeds if risk flows turn negative as appetite for the pair continues to diminish.
