As the EU contagion shows no signs of abating, the emerging markets have started to show signs of a slow down. The Chinese manufacturing has contracted if survey conducted by HSBC is to be believed. The latest flash PMI reading of 48 for November versus 51 in October is the steepest fall in the last 32 months. As exports to Europe come under pressure, a homegrown credit squeeze has started to affect the Chinese small businesses.
Meanwhile French President Nicholas Sarkozy has supported a German initiative that gives European authorities the power to intervene in national budgets of countries sharing the common currency. Both the countries will propose an amendment to the existing European Union treaty to prevent countries from diverging in the fiscal, budgetary and economic areas, he said while addressing an Asian forum in Paris. The EU will do everything to consolidate Europe, he added.
This is a marked departure from France’s earlier position where it had defended economic and fiscal sovereignty and French voters had rejected a proposed EU constitution in 2005. However, analysts’ point out Paris has hardly any choice since France’s AAA rating is under cloud and investors are seeking higher yields on French bonds.
However, Germany continues to oppose both the exit routes suggested widely for getting out of the present crisis – massive ECB intervention to buy government bonds or joint issuance of European debt. The ECB’s independence will be questioned and its mandate overstretched if it becomes the lender of last resort for the highly leveraged economies, said Jens Weidmann, head of Germany’s Bundesbank and an influential ECB policymaker.
CURRENCY RATES OVERVIEW
GBP/EURO – 1.1585
GBP/US$ – 1.5598
GBP/CHF – 1.4231
GBP/CAN$ – 1.6231
GBP/AUS$ – 1.5980
GBP/ZAR – 13.1651
GBP/JPY – 119.98
GBP/HKD – 12.1291
GBP/NZD – 2.0916
GBP/SEK – 10.6971
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EURO: The common currency came under pressure after overnight news that Belgian bank Dexia’s rescue deal is unworkable because Belgium is unable to meet its share of financing has turned risk sentiments more negative. This is bad news for France since it may have to fund the entire deal at a time when its AAA rating is under fire. The EUR/USD went up to 1.3570 yesterday before falling on the Dexia news. It opened at 1.3450 today morning.
USD: Risk is off the table over Dexia news. A weak US GDP data didn’t help the Euro either as the US commerce department revised GDP estimate to 2 per cent from 2.5 per cent yesterday. The GBP/USD pair has fallen below the 1.5600 level and opened at 1.5570 this morning although UK’s budget deficit data showed improvement and was recorded at £6.5 billion for Octoober.
Elsewhere, Sterling gained against the South African rand the most yesterday since August 2009. Both the AUD and the NZD lost ground against the greenback after the Dexia news hit the market and the antipodean currencies are trading lower against the sterling as well.
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