Economists remain unconvinced of any market pressure easing for Spain and Italy

Economists remain unconvinced of any market pressure easing for Spain and Italy

Good morning and welcome to today’s foreign exchange market commentary on Friday, the 13th of April.

Yesterday’s optimism over robust Chinese growth was proved misplaced as the country managed 8.1 percent in the first quarter of 2012, scotching rumors of the 9 percent plus reading. This led to steep fall in assets that had jumped over the past 24 hours, especially the Aussie dollar. At 8.1 percent, Q1’s growth is the lowest in the past three years though the Chinese central bank has enough tools to tweak monetary policies that’ll boost growth.

Meanwhile a survey published by Bloomberg showed the ECB is likely to undertake its government bond purchase program, known as the Security Market Program, rather than the Long Term Repurchase Operation. A poll showed 17 economists believed that the recent LTRO failed to halt latest recent surge in Spanish and Italian bond yields and ease market pressures. Only one economist out of the 22 polled believed the low-interest lending by the ECB to the region’s banks have been effective. Christian Clausen, the president of European Banking Federation blamed the new capital requirements under the proposed Basel III norms for the failure of LTRO, stating even though banks have built up their capital, the incentive to really go out and make loans is minimal, forcing them to hoard cash.

CURRENCY RATES OVERVIEW

GBP/EURO – 1.2103
GBP/US$ – 1.5936
GBP/CHF – 1.4549
GBP/CAN$ – 1.5868
GBP/AUS$ – 1.5342
GBP/ZAR – 12.581
GBP/JPY – 129.12
GBP/HKD – 12.3721
GBP/NZD – 1.9225
GBP/SEK – 10.771

EUR: The single currency hit its lowest level yesterday against the pound since Jan 9. The GBP/EUR pair touched a high of 1.2154 during afternoon despite some disappointing economic data, namely a wider UK trade balance number for Feb, possibly due to the poor response to the Italian bond auction held on Thursday morning. The single currency benefitted from better risk appetite and strong Chinese growth rumours, though the gains were muted. The EUR is unlikely to push higher as Chinese growth number disappoints though US Q1 earnings season started off on a strong footing. The GBP/EUR pair opens at 1.2106 this morning.

USD: The greenback weakened against the Sterling yesterday due to improved risk sentiments yesterday. The GBP/USD pair touched a high of 1.5984 in the afternoon trade ahead of Chinese GDP numbers. Also better economic data from the US, namely a lower trade deficit in March, spurred investors to upgrade their outlook for the US economy, supporting the overall improved risk sentiments. The UK producer price inflation numbers are due for today while CPI data is due from the other side of the pond. The GBP/USD pair opens at 1.5921 this morning.

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Have a great day!

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