Exchange Rates and Market Commentary [23/01/2012]

Exchange Rates and Market Commentary [23/01/2012]

Good morning and welcome to today’s foreign exchange market commentary on Monday the 23th of January.

The deadlock over Greek debt negotiation continues. The market had expected a breakthrough on Friday, but had to contend with no result. It is looking increasingly unlikely that a deal will be reached today – a deadline set by Greek Finance Minister Venizelos. The Greeks have proposed a whopping 70 pc haircut on the country’s debt, which if accepted will bring down the country’s debt to GDP ratio to 120 pc from the current 180 pc and facilitate the next round of bailout money.  If rejected, a vey disorderly Greek default and subsequent chaos awaits the global markets in March. Of course the market will react to the news much early, probably today or by tomorrow.

The sudden weakness of the single currency in the past 24 hours vis-à-vis the Sterling, can probably traced back due to this uncertainty.

EU officials expect, quite correctly, that Chancellor Merkel will agree to a bigger safety net in March once two key treaties – one on budget discipline to reign in profligate states, and the other on the operating rules of the permanent rescue fund, are signed. The fact remains that Ms Merkel has more confidence in Monti’s Italy than Greece, though she has not publicly acknowledged so. Italian’s complaining about rising taxes and spending cuts by the government should take heart that sovereign borrowing costs have gone down despite S&P downgrading the country by two notches recently.

 CURRENCY RATES OVERVIEW 

GBP/EURO – 1.2025
GBP/US$ – 1.5553
GBP/CAN$ – 1.5737
GBP/AUS$ – 1.4804
GBP/ZAR – 12.36
GBP/JPY – 119.85
GBP/NZD – 1.9225

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EURO: The common currency looked vulnerable on Friday as the market waited for the outcome of the PSI negotiations. The GBP/EUR touched 1.2045 in intraday trading and cable was supported by better than expected December sales number. The European finance ministers meet in Brussels today with the uncertainty of Greek talks looming overhead. The German and French short-term debt auctions are also due today. The GBP/EUR opens at 1.2005 this morning.

USD: The Sterling gained against the Greenback on Friday as better than expected December retail sales number in the UK came in and finished the week above the 1.5500 level. No economic news is expected from the domestic market or from the other side of the pond today. A protracted PSI negotiation will mean a stronger dollar and decling investor risk appetite. The GBP/USD pair opens at 1.5536 this morning.

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Have a great weekend!

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