Exchange Rates and Market Commentary [12/12/2011]

Exchange Rates and Market Commentary [12/12/2011]

Good morning and welcome to today’s foreign exchange market commentary on Monday the 12th of December.

There has been much noise over Prime Minister David Cameron vetoing a new ‘fiscal compact’ in the EU, much to the annoyance to his coalition partners who think British isolation in the EU stands complete. The bone of contention apparently was the proposed new taxes on the financial services industry – something on which the city of London is heavily dependent, to generate revenues for reducing budget deficits.

In our opinion, there’s no doubt that British interest is better served if it remains with the EU, no matter what the Tories say. EU is Britain’s biggest trade partner and the bloc is the single largest market for British goods and services. A solitary Britain is certainly less powerful, both politically and economically, than a collection of 27-member EU.

The positive outcomes for the Brussels are quite a few though the sceptics may be disappointed over the lack of sweeping changes (read money printing). The proposed new ‘stability union’ mandates a structural deficit limit of 3 per cent. Countries breaching the limit are liable to penalties.

The new €550 billion European Stability Mechanism (ESM) fund will come on stream by July 2012. The existing €440 billion European Financial Stability Mechanism (EFSF) will now be available for ‘rapid deployment’. The ESM is the permanent version of EFSF – which from the onset was a temporary makeshift arrangement.

The IMF can avail €200 billion in bilateral loans from the stronger EU members to fund future emergencies, if indeed Spain and Italy need it in future. The ECB has also chipped in to do its bit. To support the region’s vulnerable banking system, borrowing by the banks from the ECB have been made easier, which should enable them to make more advances.


GBP/EURO – 1.1711
GBP/US$ – 1.5583
GBP/CAN$ – 1.5849
GBP/AUS$ – 1.5343
GBP/ZAR – 12.72
GBP/JPY – 121.06
GBP/NZD – 2.0254

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USD: The GBP/USD had rallied briefly on Friday as domestic trade balance figures turned out better than expected, spurring the cable to touch 1.5725. The pair however, tumbled as negative news started hitting the wires. First UK PPI data came in lower than expected, weakening the Sterling. US consumer sentiment came out strongest since June, strengthening the greenback further against the cable. The pair dipped further this morning and the Sterling opens at 1.5553.

EUR: The single currency lost ground against the dollar and the Pound on Friday. Lack of any decisive action on Friday to solve the EU crisis was held responsible for the slide. The EUR/USD pair dropped 140 pips since Friday noon and opens at 1.3265 this morning. The GBP/EUR pair remained range bound on Friday is trading at 1.1717.

Elsewhere the antipodean currencies weakened against the greenback on Friday as investors flocked to safe haven currencies. Sterling made little gain against the commodity currencies on Friday and the GBP/AUD and the GBP/NZD pairs sit at 1.5385 and 2.0279 respectively.

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Have a great day!


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