Good morning. As the D-day (Wednesday) approaches, pressure on EU leaders is mounting. To make matters worse, services and manufacturing numbers from Germany, France and wider European economy showed the region slowly slipping towards a double-dip recession. The next monetary step by the new ECB president Mario Draghi is becoming obvious and a rate cut in November’s meeting is expected to be supported by the governing council.
The USD lost ground against both the Sterling and the Euro, though the release of weaker European PMI data took its toll on the common currency briefly. However, the market looked positive for risky assets later and the euro covered the initial losses. German Chancellor Markel is back in Germany today to convince lawmakers that leveraging the bailout fund EFSF is the only way forward. German lawmakers have secured a full parliamentary vote on any crisis measures negotiated in the EU, a move that may delay EU’s response over the crisis. A debate is expected to continue throughout the day.
Consumer confidence was low in France though it was not necessarily a French phenomenon. Almost all countries in the EU region have seen confidence slipping. However, German consumer confidence rising unexpectedly going into November provides some relief.
CURRENCY RATES OVERVIEW
GBP/EURO – 1.1479
GBP/US$ – 1.5956
GBP/CHF – 1.4114
GBP/CAN$ – 1.6023
GBP/AUS$ – 1.5295
GBP/ZAR – 12.6122
GBP/JPY – 121.58
GBP/HKD – 12.4186
GBP/NZD – 1.9872
GBP/SEK – 10.4772
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EURO: Though the EUR started weak after lower than expected PMI data hit the market yesterday, it received solid buying support and the EUR/USD pair went on to reclaim the 1.3900 level before stopping at a high of 1.3950. There is speculation that Sarkozy and Markel are finally singing from the same hymn sheet on a potential deal. The EU leaders may agree to set up a special purpose vehicle in order to attract private investment in the proposed EFSF expansion. The GBP/EUR pair traded in the range of 1.1470 and 1.1515 yesterday. It opens at 1.1490 this morning.
USD: Sterling breached the psychological 1.600 barrier against the greenback yesterday as the USD remained well-offered and risk was back on the radar. The UK current account figures are expected today while governor Mervyn King is expected to address the Treasury Select Committee. The GBP/USD is expected to be in a narrow range unless some unexpected news is broken by Mr. King
Elsewhere, the Japanese government said the central bank will take steps to curb excessive volatility of the Yen and may restrict trading. Both the AUD and the NZD pushed higher against the USD yesterday.
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Have a great day!