Good morning and welcome to today’s foreign exchange market commentary on Tuesday the 20th of December.
The continuing debt crisis in Europe is creating a dangerous dependence on central banks, warned Mervyn King as vice-chairman of Europe’s ‘Early warning’ watchdog while addressing a meeting of the European System Risk Board in Berlin. The Governor of the Bank of England said negative linkages have been created as the credit crisis is being passed onto the real economy. His comments assume significance after ECB conducted a radical refinancing operation (LTRO) to stabilise the region’s banks.
Mr. King, though agreed that the action will bring-short term relief to the region and stave off a credit crisis, said long-term actions like expanding the lending capacity of European Financial Stability Facility (EFSF), the lifeboat fund created to help struggling economies, is required. Some economists have already warned that instead of delinking the nexus between state borrowing and banks. Yesterday’s move will actually strengthen it.
Meanwhile Lorenzo Bini Smaghi, an executive board member at the European Central Bank, urged for quantitative easing to stave of an imminent deflation risk in the common currency bloc. Calling upon Britain to contribute in the asset purchase operation, Mr. Smaghi said the ECB would have certainly stepped in if London was in trouble.
CURRENCY RATES OVERVIEW
GBP/EURO – 1.1990
GBP/US$ – 1.5690
GBP/CHF – 1.4660
GBP/CAN$ – 1.6001
GBP/AUS$ – 1.5435
GBP/ZAR – 12.8002
GBP/JPY – 122.50
GBP/HKD – 12.2125
GBP/NZD – 2.0250
GBP/SEK – 10.7545
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EURO: The Sterling saw little movement against the euro yesterday and closed at 1.2008. The story was not much different for the greenback and the common currency closed at 1.3053 against the dollar. The dollar index, a measure of greenback volatility against six other major currencies, dropped to 79.929 from the Wednesday’s 79.999, though the dollar had risen initially over better than expected unemployment data and a strong Q3 GDP numbers.
USD: The Pound edged up against the greenback to 1.5682 level yesterday as risk was off the table and investors’ eyed riskier assets. However, the Japanese Yen lost ground against the dollar and the greenback changed hands for ¥78.10.
Elsewhere, the Australian dollar advanced against the greenback buying 1.0131 compared to 1.0080 on Wednesday.
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Have a great day!