Are Spain and Italy heading in the same direction as Greece?

Are Spain and Italy heading in the same direction as Greece?

Good morning and welcome to today’s foreign exchange market commentary on Wednesday, the 14th of March.

Nothing much happened on the economic front yesterday and trade deficit in the UK for Jan, narrowed. Focus is expected to remain on the number of people claiming unemployment benefits, due for release today.

There has been a growing chatter over Spain and Italy going in the same direction as Greece. This reminds us of BoE Governor Mervyn King’s statement in last Nov where he criticised the sudden demand for technocratic Prime Ministers. As the King correctly pointed out that the problem lies with solvency and not liquidity. Greece’s problem has been its inability to pay it debts, which required political solutions like structural reforms and fiscal consolidations. It doesn’t require economists to understand that you can’t survive long-term if you are living beyond your means. If it’s difficult for an elected govt. to implement deeply unpopular social spending cuts, it’s impossible for unelected technocrats to implement them at all.

Simple measures like streamlining the tax collection system, deregulation and privatisation of utilities and transport systems, and reforming the labour markets would ensure the peripheral economies make a comeback sooner than many of us would like to believe.


GBP/EURO – 1.2014
GBP/US$ – 1.5675
GBP/CHF – 1.4530
GBP/CAN$ – 1.5542
GBP/AUS$ – 1.4908
GBP/ZAR – 11.851
GBP/JPY – 130.53
GBP/HKD – 12.1701
GBP/NZD – 1.9182
GBP/SEK –  10.653

EUR: The single currency witnessed some volatility against the greenback in the past 24 hours despite some positive US data and better risk sentiments. German ZWE news beat expectations and the index rose to 22.3 from 5.4 in Feb., its fourth straight month of gains. However, the EUR/USD pair dropped to 1.3040 after opening at 1.3140 yesterday. The euro remained weak against the Sterling and the GBP/EUR opened at 1.2040 this morning.

USD: The cable turned volatile after starting the day flat yesterday. The GBP/USD pair rose to 1.5693 from 1.5636 after the home price survey by Royal Institution of Chartered Surveyors found prices rose between 3 and 13 percent. The dollar index, which measures the currency’s strength against a basket of six global peers, hit 80.231 from 79.869 a day earlier. Overall positive developments from the US helped the currency pair as risk sentiments improved. The GBP/USD opens at 1.5735 this morning ahead of UK unemployment data.



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