Public unrest in Spain with launch of 24-hour general strike

Public unrest in Spain with launch of 24-hour general strike

Good morning and welcome to today’s foreign exchange market commentary on Thursday, the 29th of March.

Fed Chairman’s booster liquidity dose subsided rather quickly as markets remained sold yesterday. A slip in the services industry meant revised UK GDP number came in at -0.3 percent against an estimated -0.2 percent. However, the economy is expected to reverse the trend and Q1 GDP may grow at about 0.3-0.4 percent if recent PMI numbers are any indication.

Meanwhile public unrest has come out in the open as Spaniards launched a 24-hour general strike on Thursday, protesting against a new law that facilitates lay-offs at the time of growing unemployment. The strike comes at a particularly bad time for Prime Minister Mariano Rajoy as he’s trying to show his European partners that Spain can trip budget deficits and cut public spending. The Spanish cabinet is due to meet on Friday to approve massive cuts that will help bring down deficit to 5.3 percent of GDP in 2012 from 8.51 percent last year.  The government has already announced €8.9 billion in spending cuts and €6.3 billion in new taxes. However, experts believe Spain would require €50 billion in cuts to achieve the deficit target at a time when economic output is expected to shrink by 1.7 percent.  That’s a steep challenge for a Prime Minister who came to office vowing to bring down the towering 23 percent unemployment rate and steady a wobbling economy.

CURRENCY RATES OVERVIEW

GBP/EURO – 1.1935
GBP/US$ – 1.5916
GBP/CHF – 1.4392
GBP/CAN$ – 1.5886
GBP/AUS$ – 1.5334
GBP/ZAR – 12.2110
GBP/JPY – 131.35
GBP/HKD – 12.3596
GBP/NZD – 1.9475
GBP/SEK –  10.591

EUR: The single currency remained firm against the greenback despite other global counterparts weakening as investor hopes of a stronger €940 billion sovereign rescue fund supported the single currency ahead of the EU Finance Ministers’ meeting over the weekend. Worries over Spain mounted after the country’s Finance Minister said Q1 GDP may shrink by close to 0.3 percent, equivalent to Q4 last year. There were further concerns that the country may need bailout money to meet its maturing obligations. Revised Q4 UK GDP number came in lower than previously estimated, pushing the GBP/EUR pair higher to 1.1911 on Wednesday. There’s not much economic news due today and focus will remain on the EU minister’s meet over the weekend on enhancing the rescue fund’s size. The GBP/EUR pair opens at 1.1939 this morning.

USD: Concerns over the US recovery bolstered the greenback yesterday as it continued to gain over widespread risk aversion. Lower than US durable goods orders and worries over Spanish debt ensured the USD got a boost against its peers. Cable witnessed a sell-off after Q4 GDP data came in lower than estimated, making the UK one of the weakest developed economy. The GBP/USD pair dropped to 1.5842 after starting off at 1.5930 by mid-day, only to recover later. Following yesterday’s lackluster GDP numbers, focus will be on UK’s housing reading today morning. Weekly jobless claims and final US Q4 GDP numbers are due from the other side of the pond. The GBP/USD pair opens at 1.5929 this morning.

 

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