Exchange Rates and Market Commentary [31/10/2011]

Exchange Rates and Market Commentary [31/10/2011]

Good morning. The euphoria over Wednesday’s EU deal didn’t last long as the soaring yield on Italy’s bond auction proved that the market remains skeptical about the success of the latest deal. The focus will remain over the rate decisions of the European Central Bank and the Bank of England. There is every possibility of the region witnessing a double-dip recession if rates are hiked. The ‘flash’ October CPI data is expected from Europe today.

On a positive note, both Japan and Russia have expressed readiness to help Europe to expand the EFSF fund. A top Russian economic adviser – Arkady Dvorkovich said: “There have been no formal requests from the European Union but if they make such a request … the Finance Ministry, the central bank, the government … will seriously consider it as well as the possibility of support.” Russia has already held consultations with other emerging countries on aiding the euro-zone and could invest up to $10 billion through the International Monetary Fund, said the adviser close to Kremlin.

Klaus Regling – the head of Europe’s bailout fund now touring Asia over possible Asian participation in the EFSF expansion, told reporters that Japan’s top currency official has assured him of continued support. “The Japanese government will continue to buy the EFSF bonds that we have been issuing over the last 10 months and we will continue to be in contact about future operations,” Regling said. Japanese Yen lost about 4% after the overnight intervention by the authorities to give some relief to the country’s struggling exporters.

CURRENCY RATES OVERVIEW

GBP/EURO – 1.1428
GBP/US$ – 1.6022
GBP/CHF – 1.3948
GBP/CAN$ – 1.6012
GBP/AUS$ – 1.5181
GBP/ZAR – 12.5240
GBP/JPY – 126.68
GBP/HKD – 12.4589
GBP/NZD – 1.9714
GBP/SEK – 10.3292

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EURO: The Friday session remained flat without much activity. The Euro had risen to 1.4250 against the greenback on Friday while the Sterling had slid to 1.1370 against the common currency. However, these gains were pared over the weekend after negative reports of China refusing to participate in the EFSF bond purchase appeared in the media. Risk appetite has waned and the EUR/USD pair opened at 1.3995 this morning while the GBP/EUR is trading at about 1.1443.

USD: Sterling opened lower against the greenback this morning as risk aversion made a comeback. Friday was quiet and the only positive development was stronger than expected consumer sentiment and personal spending data. The GBP/USD opens at about 1.6005 this morning.

Elsewhere both the AUD and the NZD lost ground against the greenback as risk remains off limits for investors. The Sterling also gained against the antipodean currencies and the GBP/AUD and the GBP/NZD pairs are trading around 1.5172 and 1.9760 respectively this morning.

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Have a great day!

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