Exchange Rates and Market Commentary [24/01/2012]

Exchange Rates and Market Commentary [24/01/2012]

Good morning and welcome to today’s foreign exchange market commentary on Tuesday the 24th of January.

The Greek debt deal, that has nearly the entire world’s attention, proved elusive yet again as the ongoing PSI (private sector initiative) negotiations failed to reach a conclusion yesterday. Though there is a general consensus that time is running out, the holders of Greek debt rejected Athens’ offer of lower interest rates on replacement bonds under a massive combination of write-downs and refinance mechanisms to bring the country back.

However, Olli Rehn, the economic affairs commissioner of European Union said Greece must accelerate structural reforms of labour and other markets, and increase the tax base to secure a second loan programme. Greece is waiting for a new rescue deal worth €130 billion from its European partners, but must clinch a deal under the PSI that will cut Athens’ debt by €100 billion. A spate of tax rises has already triggered massive public demonstrations across the country. Dutch Finance Minister Jan Kees de Jager however, was more forthright and said unless Greece convinces the EU of future growth and sustainable debt levels, there will be no further loans. Not sure if this is posturing or he means business, but if no deal materializes – which seems unlikely, it certainly opens the door for Greece’s exit from the EU.

The current negotiations are stuck over the interest rate on replacement bonds after banks write down 50 pc of existing Greek debt holding. The banks want a minimum of 4.0 pc while Luxembourg’s Prime Minister wants the interest rates to settle between 3.5 pc and 4 pc for the period till 2020, helping Athens bring down the Debt-GDP ratio to 120 pc from 160 pc now.


GBP/EURO – 1.1979
GBP/US$ – 1.5579
GBP/CAN$ – 1.5719
GBP/AUS$ – 1.4860
GBP/ZAR – 12.46
GBP/JPY – 120.13
GBP/NZD – 1.9258
GBP/NZD – 1.9225

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EURO: The single currency’s initial weakness proved short-lived as news of the successful French and German debt auction hit the market. The rally against the greenback pushed the GBP/EUR pair lower to 1.1943, and the pair remained range-bound around that level for the rest of the day. We have the Spanish bond auction and German PMI data due today although eyes will remain on the ECOFIN meeting in Brussels. The GBP/EUR pair opens at 1.1923 today.

USD: The greenback lost ground against most of its peers yesterday as risk appetite was higher among investors who were cautiously optimistic about a Greek swap deal. Cable also rallied against the USD and the GBP/USD pair hit 1.5602, its highest since January 5. The UK public sector borrowing data is due for release today though focus will remain on tomorrow’s Q4 GDP data and BoE’s minutes on MPC meeting. GBP/USD opens at 1.5543 this morning amid uncertainties of the Greek deadlock.

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