Good morning and welcome to today’s foreign exchange market commentary on Tuesday, the 27th of March.
As we spoke about the EU crisis yesterday, the Organization for Economic Co-operation and Development (OECD) said Europe’s public debt situation is far from over on Tuesday. The region’s debt levels are rising, fiscal targets far from achieved and banks are still weak, the OECD warned. However, the Paris based think-tank which tracks industrial nations to stimulate growth, said the 17-member union may witness 0.2 percent GDP expansion this year, in a marked departure from the forecasts of the IMF and the European Commission that predicted an outright contraction. Even as the monetary union plans deep austerity measures, debt levels are expected to reach 91 percent of GDP next year for the region.
The EU leaders must chalk out medium-term budgetary plans that are detailed and credible, the OECD report observed. While strengthening the region’s banks, the bloc must create a strong enough firewall to stop a contagion and agree to support indebted countries like Spain and Italy should they be shut out from the capital markets, the report said.
Meanwhile the Fed Chairman Ben Bernanke said the central bank may initiate another round of quantitative easing if US unemployment levels start to rise. He also indicated that interest rates will be held at record low levels to stimulate demand, driving stocks higher globally. German economic data came in positive yesterday though the euro gained slightly after reports of German Chancellor Angela Merkel agreeing to boost the lifeboat fund’s resources came in.
CURRENCY RATES OVERVIEW
GBP/EURO – 1.1953
GBP/US$ – 1.5951
GBP/CHF – 1.4421
GBP/CAN$ – 1.5809
GBP/AUS$ – 1.5170
GBP/ZAR – 12.112
GBP/JPY – 132.26
GBP/HKD – 12.3886
GBP/NZD – 1.9402
GBP/SEK – 10.643
EUR: The single currency got some support early yesterday after German IFO number came in better than expected. Italian consumer confidence also climbed unexpectedly to 96.8 in March from 94.4 a month before, boosting the euro further. However, the EUR/USD pair jumped 100 points after Fed Chairman Bernanke’s dovish announcement about accommodating economic policy measures to boost employment. The GBP/EUR pair also dropped to an intraday low of 1.1947 on the euro’s strength. That being said, focus will now slowly shift towards the EU Finance Minister’s meet on Friday as the week progresses. The GBP/EUR pair opens at 1.1971 this morning.
USD: The greenback witnessed a sharp sell-off yesterday after an unexpected dovish announcement by Bernanke at the National Association for Business Economics Annual Conference at Arlington on further quantitative easing measures. The GBP/USD pair touched an intraday high of 1.973 before consolidating its gains for the day. Some important data releases including the consumer confidence, the Case-Schiller Composite Home Price Index and the Richmond Fed Manufacturing Index, are expected today from the other side of the pond. The GBP/USD pair has remained firm overnight and opens at 1.5980 this morning.