Good morning and welcome to today’s foreign exchange market commentary on Monday the 17th of January.
Monday’s biggest development was Standard & Poor’s downgrading the European Financial Stability Facility (EFSF). The EU region’s lifeboat fund slipped a notch to AA+ from AAA. This was however, pretty much expected after France lost its top sovereign rating on Friday. The rating’s agency had warned that if any of the main funding countries (Germany, France and the Netherlands) lost their top rating, the EFSF will lose its crown as well. However, the fund got support from Japan as the country’s Finance Minister Jun Azumi announced today that faith in bonds issued by EFSF remains undiminished.
Meanwhile, markets remained quiet yesterday with the US busy celebrating Martin Luther King’s day holiday. Chinese GDP numbers came in at 8.9 pc for the December quarter, beating analysts’ forecast of 8.7 pc. Though this is the weakest growth in two years, markets reacted positively with the Hang Seng index rising 3.24 pc and the Nikkei ending 1.05 pc higher.
Talking about the Chinese growth story, Chancellor George Osborne’s impending Far-East mission assumes significance as many analysts predict the renminbi/Chinese yuan gaining prominence as the world’s alternate reserve currency in future. Chancellor Osborne would certainly like to turn the City into the first non-Chinese hub for renminbi trading. London does enjoy a competitive advantage though there is strong competition from other financial centres. However, much of the success will depend on how the Chinese loosen their grip on the yuan. The renminbi has been pegged against the dollar for years with frequent frictions between the two largest economies and the US accusing the Chinese of keeping the currency low artificially for export advantages.
CURRENCY RATES OVERVIEW
GBP/EURO – 1.2040
GBP/US$ – 1.5374
GBP/CHF – 1.4576
GBP/CAN$ – 1.5564
GBP/AUS$ – 1.4751
GBP/ZAR – 12.3048
GBP/JPY – 117.74
GBP/HKD – 11.9368
GBP/NZD – 1.9206
GBP/SEK – 10.6334
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EUR: Despite the EFSF suffering a downgrade yesterday, the EUR/USD pair pushed higher on Monday as Chinese GDP data came in higher than expected that triggered an Asian equity rally. The single currency got further support as EFSF officials said the fund has enough fire-power to deal with the ongoing crisis. The German ZEW Economic confidence data is due today while all eyes will remain on debt auctions by Greece, Spain and Belgium and the EFSF. The Euro has gained against the dollar overnight and the EUR/USD pair opens at 1.2760 this morning. The Sterling has also lost ground against the common currency in the past 24 hours and the GBP/EUR pair opens at 1.2040 this morning.
USD: Risk sentiments improved overnight after Chinese GDP data came in better than expected. The GBP/USD closed the day higher at 1.5350 yesterday despite hitting a low of 1.5290 after Friday’s European downgrade. BoE Governor Sir Mervyn King is due to present the Financial Stability Report before the Treasury Committee while UK CPI data is also due in the morning. The GBP/USD pair opens at 1.5370 this morning.
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Have a great day!
