Exchange Rates and Market Commentary [14/12/2011]

Exchange Rates and Market Commentary [14/12/2011]

Good morning and welcome to today’s foreign exchange market commentary on Wednesday the 14th of December.

The euro took a beating again yesterday touching a fresh nine month low versus the US dollar. Skeptics are of the opinion that the measures announced in Friday’s Brussels summit will fall short because it ignores the credit market dynamics completely.

Europe’s rule-based fiscal reforms, rather than fiscal union, may not be sufficient for the common currency zone. The commitment from the member states for further austerity measures, rather than fixing the faulty banking system that created destructive credit bubbles in the first place, may prove fatal.

Reforming the fiscal framework without fixing the financial system – the ponzi-fest of lending that suck in Ireland and Greece, and now threatening France and may threaten Germany soon, fails to bring the current crisis to its logical conclusion.

A similar storm was brewing in Spain with housing-related credit, but fortunately not resulted to a banking crisis.

Greece had a unique problem – state fudging of economic data. It’s worth noting here that no amount of new rules will stem the rot if governments start fabricating economic statistics. Most of the efforts in Europe have been devoted to make the banks solvent, rather than reforming them to prevent future credit bubbles. Unless states break the chain of bank-state dependency, banks may truly break states in the future.

CURRENCY RATES OVERVIEW

GBP/EURO – 1.1895
GBP/US$ – 1.5488
GBP/CHF – 1.4668
GBP/CAN$ – 1.6038
GBP/AUS$ – 1.5485
GBP/ZAR – 12.9261
GBP/JPY – 120.74
GBP/HKD – 12.0471
GBP/NZD – 2.0490
GBP/SEK – 10.8182

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EURO: Angela Merkel’s outright rejection of proposed expansion of the European bail-out fund took its toll on the common currency yesterday. Te greenback strengthened further by the news that the US Fed will not infuse fresh liquidity in the market for now. The GBP/EUR pair breached the 1.1900 level this morning before losing some ground. The EUR/USD pair is at 1.3010 and can touch the 1.3000 level.

USD: Sterling traded at 1.5580/1.5610 against the greenback yesterday as risk was off the table. Angela Merkel’s rejection of raising the bailout funds capacity hammered the Sterling further and cable touched a low of 1.5460 before recovering later. The GBP/USD opens at 1.5511 this morning.

Elsewhere, the antipodean currencies are witnessed increased volatility against the greenback and the cable yesterday. The AUD however, gained ground against the USD this morning and opened at 1.0026.

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Have a great day!

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