A prologue to an impending crisis is being written

A prologue to an impending crisis is being written

By Sayan Guha

Good morning and welcome to today’s foreign exchange market commentary on Thursday, the 26th of April.

Globally there has been a frustration building up over the recent political developments in Europe. The continent is now being seen as strange and decadent. The sudden rise of the National Front Party in France after Sunday’s elections makes Marine Le Pen the kingmaker and brings her to the centre-stage. As European leaders scramble to find out a solution to the never-ending debt saga, in Hague a new drama unfolded when the Dutch government fell after the far right Party for Freedom withdrew support to the ruling coalition, citing opposition to the proposed 3 percent budget deficit in the new fiscal compact.

Across Europe, there seems to be a wave of populism over prudence as politicians denounce Brussels, denounce those who are against the “people.” Both Le Pen and Geert Wilders – the leader of the Party for Freedom, know that the solutions to Europe’s problems are difficult and time-consuming, and choose to ignore them.

Europe has been torn for centuries. In the ongoing French elections and the floundering Dutch government, a prologue to an impending crisis is being written. The EU has been fundamentally flawed and the solution probably lies in the members leaving the union and end the artificial order, re-creating the old order. The bad implementation of good intentions can still be fixed.

CURRENCY RATES OVERVIEW

GBP/EURO – 1.2235
GBP/US$ – 1.6189
GBP/CHF – 1.4706
GBP/CAN$ – 1.5902
GBP/AUS$ – 1.5597
GBP/ZAR – 12.523
GBP/JPY – 131.43
GBP/HKD – 12.5621
GBP/NZD – 1.9804
GBP/SEK –  10.868

EUR: Despite the lack of any economic data from the Eurozone yesterday, the single currency held its ground as the spread between Bund versus periphery bonds narrowed, showing improved investor sentiment. Spanish and Italian 10-year bond yields remained below the six percent level, scotching concerns of unsustainable borrowing costs. The EUR/USD however remained range-bound despite Bernanke dropping hints of further QEs after the FOMC meeting yesterday, largely due to political uncertainty over France. The GBP/EUR slumped to 1.2159 over weak UK economic data, only to bounce back later to touch 1.2247 as investors chose to ignore the negative GDP reading, hoping for a revised figure at a later date. The EU economic data is light today though focus will remain on the political developments in Holland. GBP/EUR opens at 1.2221 this morning.

USD: The GBP/USD pair tumbled yesterday as the news of UK Q1 GDP contraction came in. The pair however, recovered later to hit a high of 1.6100 on strong sovereign demand. The pair continued with the momentum into the US session and touched a multi-month high of 1.6182 as the greenback continued to weaken over further QE indication in the FOMC meeting by the Fed chairman Ben Bernanke. The GBP/USD pair broke to a new high of 1.6207 after UK consumer confidence reading came in at a nine-month high. There’s not much economic news from the UK though initial job loss claims are du from the other side of the pond.  The GBP/USD pair opens slightly lower at 1.6198 this morning.

 

 

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