Exchange Rates and Market Commentary [29/12/2011]

Exchange Rates and Market Commentary [29/12/2011]

Good morning and welcome to today’s foreign exchange market commentary on Thursday the 28th of December.

As the UK gets ready for a possible euro break-up scenario followed by a sudden surge in capital inflow, Beatrice Weder di Mauro – an economic adviser to German Chancellor Angela Merkel, refused to rule the possibility of an euro breakup. While conceding that the collapse of the common currency will be bad for everyone involved, the Swiss economist didn’t rule-out the possibility completely.

“That would be bad for everyone involved – but not completely excluded,” she said in an interview to Bild.de. “The policy has been trying for almost two years to contain the crisis and to draw firewalls. However, these walls are not rich yet,” she added.

If corrective measures are not taken immediately, the German economy may contract by 0.5 per cent and witness widespread unemployment, she warned.

Fiscal discipline however, needs to be implemented rigourously, she added. “We need a triad: over-indebted eurozone nations must submit to a long-term insolvency rule. The others must undertake to reduce debt and stabilize the government budgets. With a debt settlement pact, the debt ratios may fall below 60pc over 20 years. This requires that the short-term interest rates are pushed through mutual guarantees to a realistic level,” she explained.

Meanwhile back home, clothing chain D2 jeans went into administration yesterday, leaving 200 employees redundant. Also proposed cuts in care budgets will result in 900,000 citizens missing out on government support in 2012. According to Centre for Economics and Business Research, Brazil has now replaced the UK as the sixth largest economy in the world.

CURRENCY RATES OVERVIEW

GBP/EURO – 1.1960>
GBP/US$ – 1.5470>
GBP/CHF – 1.4587>
GBP/CAN$ – 1.5834>
GBP/AUS$ – 1.5325>
GBP/ZAR – 12.5900>
GBP/JPY – 120.15>
GBP/HKD – 12.0244>
GBP/NZD – 2.0102>
GBP/SEK – 10.7057>

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EURO: The common currency weakened against the greenback yesterday and the EUR/USD pair slid to 1.2891 from Wednesday’s close of 1.3070. The WSj reported yesterday that Merkel and Sarkozy will meet on Jan. 9 to finalize ‘more fiscal compact’ among the EU members. The pair opens at 1.2925 this morning while the Sterling has weakened ahead of Italy’s debt auction and the GBP/EUR pair opens at 1.1940 this morning.

USD: The greenback moved north against major global currencies yesterday and the immediate trigger was lack of liquidity in the market. The GBP/USD pair touched a low of 1.5431 yesterday from 1.5670. The trigger for price movement today will be the Italian 10-year debt auction while US Pending Home Sales and unemployment data, due later today, will also be closely watched.

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Have a great day!

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