Is Portugal An Equally Desperate Economy?

Is Portugal An Equally Desperate Economy?

Good morning and welcome to today’s foreign exchange market commentary on Tuesday, the 17th of April.

Global markets are again in the midst of a turmoil though two of the biggest contributors, the US and China, seem to have stabilised the boat lately. As concern over the EU region grows and Spain teeters on the border of a Greece style bail-out, focus shifts to another smaller but equally desperate economy, Portugal.  There’s a strong possibility that Lisbon won’t be able to fund itself on the markets in the second half of 2013 and require a bailout package, yet there’s a chance that the country won’t force losses on private sector creditors.

Portugal has done a commendable job so far and EU leaders may agree to a second bailout without further spending cuts. Budget deficit stood at 3.5 percent last year and the IMF estimates it to be within 4 percent this year. Lisbon has a lower deficit than Madrid and the GDP-to-debt ratio is lower than Italy’s.

The country’s finances nonetheless remain fragile and contingent liabilities of the public sector and rising bank losses can push up government debt higher. Also a drastic deleveraging of the private sector will hit growth, something the IMF is worried about. The Portuguese may reject endless rounds of austerity measures if it fails to deliver positive improvements in the near term.

CURRENCY RATES OVERVIEW

GBP/EURO – 1.2115
GBP/US$ – 1.5862
GBP/CHF – 1.4564
GBP/CAN$ – 1.5884
GBP/AUS$ – 1.5394
GBP/ZAR – 12.632
GBP/JPY – 127.85
GBP/HKD – 12.3171
GBP/NZD – 1.9456
GBP/SEK –  10.771

EURO: The pound remained in demand versus the euro over its perceived safe-haven status on Monday and the GBP/EUR pair hit a 19-month high of 1.2179 during the European session. Also as the spread between German bund and the peripheral countries’ bond widened and European equities looked vulnerable, the EUR/USD pair tumbled lower, clipping the 1.3000 level for the first time in two months. However, the single currency reversed its losses in the US session against both the greenback and the cable over better than estimated US retail sales number. The market will be closely watching the German ZEW numbers today and the success of Spanish 12 and 18-month bond auctions and a poor result can certainly bring the euro under pressure. The GBP/EUR pair opens at 1.2123 this morning.

USD: The dollar eased against its major counterparts as risk sentiments improved yesterday over strong US retail sales number in March. Sterling touched a high of 1.5900 in the day’s trading after spending much of the day around 1.5820. UK’s inflation numbers for March are due today and a reading above 3.4 percent may force the BoE to suspend its asset purchase program in the short term. Also we have the housing sector and manufacturing numbers from the other side of the pond and any softness in these numbers would cast a doubt over the world’s biggest economy’s recovery. The GBP/USD opens at 1.5910 this morning.

 

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