Good morning and welcome to today’s foreign exchange market commentary on Friday, the 4rd of May.
The outgoing FSA chief executive of FSA Hector Sants castigated the banks last week for non-existing corporate governance. Some may argue that this is a bit too late since it’s been close to five years since the global banking crisis hit. Sants rightly pointed out that the pre-crisis regulatory framework was inadequate on capital and liquidity requirements, adding the traditional business models were primitive, borrowing short and lending long was the perfect recipe for a disaster.
Most of the shortcomings have already been resolved or in the process of being resolved through Basel II and Basel III regulations. This has been accompanied by a transition to a more rule-based framework rather than a light-touch one. Sants rightly said that corporates are inanimate objects, and are an aggregation of their employees, senior and junior and reflects their behaviour. Senior managers treated customers as donors to organisation for own financial gains and people lived up with this as money was cheap during the boom period. But this changed at the time of austerity, when they started questioning dubious charges.
The report covers in detail the public impression about banks, the over-sized pay packages of its executives and the quality of service – delivered to the public. Customers still remain wary about being mis-sold toxic products, in particular the elderly who have accumulated large sums. These points were laid bare by the Capgemini World Retail Banking 2012 report, and are in the public domain. The banks need to evolve and be more transparent to inspire confidence in the general public.
CURRENCY RATES OVERVIEW
GBP/EURO – 1.2307
GBP/US$ – 1.6178
GBP/CHF – 1.4794
GBP/CAN$ – 1.5993
GBP/AUS$ – 1.5775
GBP/ZAR – 12.493
GBP/JPY – 129.73
GBP/HKD – 12.5584
GBP/NZD – 2.0210
GBP/SEK – 10.947
EUR: The European Central Bank meeting in Barcelona failed to spring up any major surprise yesterday with the bank deciding to continue with its low interest rate regime. The euro shorts scrambled for cover, pushing the single currency higher across the board as ECB Governor Mario Draghi gave no indications of any fresh stimulus measures. The euro had come under pressure earlier on in the morning after Spanish five-year maturity yields shot to 4.75 percent versus 3.57 percent in a similar maturity auction in Feb. The cable remained strong against the single currency though there were some weaknesses after the UK services PMI data showed the country’s services grew slower than estimated in April. Nonetheless, it was realised shortly that the readings were still in the green and indicated expansion, and crucially much better than the stricken numbers churned out the EU peripheral nations. Investors sought the relative safety of UK assets thereafter, pushing the GBP/EUR pair to a high of 1.2340, a level not seen since June 2010. The GBP may gain further strength if the Eurozone services PMI reading, due today morning, falls short of expectations. The GBP/EUR pair opens at 1.2310 this morning.
USD: The cable failed to make much headway against the greenback yesterday and mostly remained range-bound as investors preferred the safety of the world’s reserve currency before the all important monthly jobs data in the US today. The Pound suffered an early setback after data showed UK services growth slowed in April, though it remained in the expansionary territory for the 16th month in a row. Yesterday’s ISM services sector data came in lower than estimated and this, combined with weak ADP payrolls data points to a potentially soft Non-farm payrolls data today. The GBP/USD pair opens at 1.6170 this morning.
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Have a great weekend!