by Sayan Guha
Good morning and welcome to today’s foreign exchange market commentary on Monday, the 5th of March.
Greece and China are hogging the global headlines, though for very different reasons. Chinese Prime Minister Wen Jiabao pegged the country GDP growth at 7.5 percent for 2012, indicating a slowdown for the world’s second largest economy. Premier Jiabao emphasised boosting domestic demand as his priority as Beijing looks to reduce dependence on exports and foreign capital. Global commodity prices may ease on slowing Chinese demand.
Greece is in the news as the debt crisis has raised its head again after a brief hiatus. Just when we though the credit crisis is behind us, at least for now, after the ECB pumped more than a trillion Euros to ease a credit crunch, officials admitted that that the private sector initiative is not progressing well. Apparently, not everybody is happy with a 70 percent hair-cut. However, if no consensus is reached by Thursday, then Greece can impose Collective Action Clauses (CAC), forcing rebel bondholders to swap their debt-holdings with new assets, which may also result in some insurance payouts in the form of Credit Default Swaps. However, the situation may spin out of control if less than 66 percent of creditors refuse to accept the deal in its current form.
Back home, Manufacturing PMI numbers have come in lower-than-expected, though they are in the positive territory, indicating overall expansion. Services number came in at 53.8 for Feb. this morning compared to 56 in January. Any reading above 50 denotes an expansion, though the rate has slowed in Feb. Fortunately Construction PMI reading rose fastest in nearly a year. Unless the economy loses momentum further, first quarter GDP should witness some expansion by the end of March. The British Chamber of Commerce said today morning that the BoE need not infuse further liquidity as UK is unlikely to slip into recession this year.
CURRENCY RATES OVERVIEW
GBP/EURO – 1.1972
GBP/US$ – 1.5798
GBP/CHF – 1.4436
GBP/CAN$ – 1.5658
GBP/AUS$ – 1.4748
GBP/ZAR – 11.9320
GBP/JPY – 128.31
GBP/HKD – 12.2672
GBP/NZD – 1.9108
GBP/SEK – 10.5718
EURO: The single currency lost ground against the greenback on Friday after German retail sales number came in 2.1 percent blow forecast while Spanish unemployment rate jumped by another 2.4 percent. Total number of people out of work now stands at a staggering 4.7 million in Spain. The EUR/USD pair dropped to 1.3167 this morning. Sterling however failed to capitalise on the rally and the GBP/EUR opens lower at 1.1992 this morning.
USD: There was little economic data on Friday with the UK Construction PMI the only data released for the day. The construction sector grew for the 14th month on the trot. Cable declined on Friday nonetheless as investors preferred the greenback ahead of the weekend. Also negative data from Europe didn’t help Sterling. GBP/USD opens at 1.790 this morning.
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Have a great day!