Exchange Rates and Market Commentary [17/10/2011]

Exchange Rates and Market Commentary [17/10/2011]

Good morning. Are we about to see the beginning of the end of euro – as Wall Street Journal puts it, or the end of the current European crisis? The G20 leaders have kept the pressure on the eurozone on Saturday, telling them to get their house in order within weeks. The richest 20 members agreed that the eurozone support should come mainly from Germany and France and urged to IMF to ensure that there is adequate liquidity in the market for countries that may experience shocks in near future. The United States however, along with Canada and Australia, shot down the idea of a bigger IMF war-chest on Friday, putting the onus back on Europe to solve the crisis on their own. German Finance Minister Wolfgang Schaeuble agreed that Europe needs to solve its own problems. A draft communiqué by the G20 says the group “looks forward to further work to maximize the impact of the EFSF (bailout fund) in order to address contagion and to the outcome of the European Council on October 23.” So all eyes will now firmly be fixed on next Sunday’s meeting.


GBP/EURO – 1.1386
GBP/US$ – 1.5812
GBP/CAN$ – 1.5905
GBP/AUS$ – 1.5280
GBP/ZAR – 12.27
GBP/JPY – 121.96
GBP/NZD – 1.9643

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Euro: The EUR/USD pair rallied on Friday on improved risk appetite. US retail sales figure grew more than expected in September and was recorded at 1.1 per cent for the month. However, the US consumer sentiment index dropped unexpectedly to 57.5 in October from 59.4 in September. This provided further boost to the Euro. Meanwhile German Finance Minister Schaelble said banks need to accept bigger ‘haircut’ than the previously agreed 21%, a move opposed by France since its banks continue to hold large amounts of Greek debt. The EUR/USD pair broke the 1.3800 barrier on Friday and opened at 1.3905 today morning.

USD: The GBP/USD USD also rallied on Friday and breached the 1.5800 level on Friday. Sentiments improved after French and German Finance Ministers promised that decisive action will be announced at the October 23 Meeting. The focus in UK will be the CPI, due for tomorrow. The GBP/USD pair opens at 1.5820 this morning.

Elsewhere AUD and NZD performed strongly on Friday against the greenback. However, both GBP/AUD and GBP/NZD pairs drifted lower overnight and opened at 1.5290 and 1.9660 this morning respectively.


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