Good morning and welcome to today’s foreign exchange market commentary on Friday, the 25th of May.
The eurozone leaders did something right for the first time since the crisis broke out after Wednesday’s informal dinner in Brussels. They chose not talk much. A communiqué that was released following the meeting actually told nothing. And its better that EU politicians keep mum and pretend that the answers to the Greek crisis are known to the Greeks only, irrespective of what the market expectations may be.
The second parliamentary election due for June 17 should be a de-facto referendum on the single currency, or at least that’s what the EU members would like it to be. But if they talk too much about it, the Greeks may protest it citing sovereignty. They may offer some concessions afterwards to alleviate the pain, but if they reveal their plans in advance, the radical lefts that have rejected the current austerity measures as excessive, may become bolder ahead of the polls and make further demands. Meanwhile the ECB and EU leaders better prepare for the worst, a disorderly “Grexit”. But they need not announce it in public lest it looks like a self-fulfilling prophecy, and markets react sharply to the news globally.
It’ll be better if EU leaders keep working away from the limelight, preparing for any eventuality for the day after the Greek elections. Whether supporting Greece for aggressive growth plans or dropping them from the currency zone, it should be ready with contingency plans. Till then silence will be golden.
CURRENCY RATES OVERVIEW
GBP/EURO – 1.2473
GBP/US$ – 1.5659
GBP/CHF – 1.4993
GBP/CAN$ – 1.6082
GBP/AUS$ – 1.6042
GBP/ZAR – 13.061
GBP/JPY – 124.75
GBP/HKD – 12.159
GBP/NZD – 2.0751
GBP/SEK – 11.232
EUR: The euro came under pressure yesterday after Eurozone Manufacturing PMI reading dropped to the lowest level since June 2009 and German IFO business confidence index came in below estimates. The EUR/USD pair dropped to a 22-month low of 1.2515 before crawling higher, but the relief proved short-lived as a Greek opinion poll showed the anti-austerity SYRZIA party leading over the conservative New Democracy. The cable failed to capitalise on the euro’s weakness as the downward revision of UK’s Q1 GDP stifled the growth of sterling. The economic data docket is light today for the UK and Europe and the usual headlines will decide the single currency’s movement. The GBP/EUR pair opens at 1.2440 this morning.
USD: The pound plunged to a two-month low after the first GDP iteration showed UK’s recession is deeper than estimated. The weak Q1 economic data along with soft retail sales reading released the previous day continued to lead investors to believe that the case for another round of assets purchase is mounting. Against an overall abysmal European growth picture, investors rushed to invest in safe haven assets and with record low yields being drawn in US seven year Treasury auctions yesterday, it’s not difficult to imagine where the dollars are flying. US economy, though not firing on all cylinders, still showed signs of improvement with a pickup in demand for durable goods and jobless claims falling marginally last week. The economic data calendar is light today no heavy news is due from either side of the pond. The GBP/USD opens at 1.5676 this morning.