Exchange Rates and Market Commentary [20/12/2011]

Exchange Rates and Market Commentary [20/12/2011]

Good morning and welcome to today’s foreign exchange market commentary on Tuesday the 20th of December.

The single currency suffered a jolt again in the past 24 hours as European leaders failed to reach an agreement over the size of additional loans to IMF. An additional €200 billion in loans to the IMF was expected, but only €150 billion materialised after a late afternoon conference call. Sweden, Denmark, Poland and the Czech Republic didn’t participate in the funding and have sent the proposal back to their parliaments for approval. Britain also refused to contribute stating participation from non-EU members is required before it loosens its purse.

The continuing uncertainty in the EU has triggered the speculation of the euro’s demise in 2012. But looking at Germany’s resolve, it seems unlikely. Chancellor Merkel has given a little up a little more ground at each emergency summit meeting. She allowed the Greek debt haircut, bringing the country back from a sure-default, approved recapitalization of the region’s banks to prevent another Lehman-type scenario, gave the go-ahead for the creation of the permanent bailout fund – the ESM, and convinced EU members for greater fiscal union. In effect she has ensured that fiscal discipline is enforced and refused to dole out free lunches to erring economies.

Once the dust settles over unlimited currency printing, don’t be surprised if she actually allows some of it in 2012. And then a larger ESM followed by a green-signal to the ECB to become the lender of the last resort. And perhaps Eurobonds as well.


GBP/EURO – 1.1934
GBP/US$ – 1.5552
GBP/CHF – 1.4579
GBP/CAN$ – 1.6119
GBP/AUS$ – 1.5639
GBP/ZAR – 12.9782
GBP/JPY – 121.21
GBP/HKD – 12.0995
GBP/NZD – 2.0468
GBP/SEK – 10.7532

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EURO: The single currency remained weak yesterday as Europe continues to drag its feet over the size of contribution to IMF. Four countries outside the EU pledged to contribute as EU finance ministers managed to commit €150 billion to the IMF. However, current account deficit for the region came at €7.5 billion, well below predicted figures. The greenback and the cable is expected to remain strong against the single currency despite German Ifo data coming out stronger than expected. The GBP/EUR pair opens at 1.1948 this morning while the EUR/USD pair is trading at about 1.3038.

USD: The Sterling had opened on a weak note yesterday after the news of Kim Jong Il’s death spooked the market. The negative talk from BoE’s Fisher over the health of British banks didn’t help matters either. The Sterling however opens higher this morning after stronger than expected consumer confidence data came in and the GBP/USD pair currently sits at 1.5578.

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