Exchange Rates and Market Commentary [29/09/2011]

Exchange Rates and Market Commentary [29/09/2011]

Good morning. The Euro continued with its ascent yesterday after Finnish law makers voted in favour of a stronger European Financial Stability Facility bailout facility. “I am satisfied that the Finnish parliament has approved the changes in EFSF, because it is important in order to strengthen the confidence. Now we have fulfilled our duty concerning the July 21 package,” said Finnish Prime Minister Jyrki Katainen to Reuters after the six party coalition voted unanimously in favour of the proposal. European leaders on July 21 had proposed that the EFSF be given authority to give precautionary loans and buy sovereign bonds to avoid possible defaults. The proposal needs to be approved by all parliaments of all 17 member states.

Germany’s Bundestag votes on the EFSF proposal today. Dissent within the ruling coalition may force Chancellor Angela Markel to rely on centre-left opposition for passage of the bill. The single currency also gained yesterday after figures showed Germany’s inflation falling slower than anticipated. This minimizes the ECB’s rumoured 50 bps rate cut in the next monetary policy meeting. European Council chairman Jose Barroso argued for greater economic integration among the members while addressing the European parliament yesterday. “It was an illusion to think that we could have a common currency and a single market with national approaches to economic and budgetary policy,” said Mr. Barroso clearly identifying the current deficiencies, and added that it will be unfair to assume eurozone bonds will be “a natural and advantageous step for all.”

In the UK, another member of the MPC has spoken in favour of another round of quantitative easing. “The case for quantitative easing has become in my mind quite finely balanced … It wasn’t quite as closely balanced a decision two or three months back, before we really got the bad news over the summer,” said MPC member David Miles. The markets are expecting monetary easing of about £50 billion being announced in November.


GBP/EURO – 1.1474
GBP/US$ – 1.5616
GBP/CHF – 1.4011
GBP/CAN$ – 1.6118
GBP/AUS$ – 1.5944
GBP/ZAR – 12.2687
GBP/JPY – 119.58
GBP/HKD – 12.1791
GBP/NZD – 2.0055
GBP/SEK – 10.5988

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EURO: The single currency rose 0.5% against the USD and GBP yesterday. There is some optimism that the EU leaders are taking correct steps to tackle the debt problem at last. Chancellor Markel yesterday announced that Germany will wait for Greece’s progress report on deficit reduction before announcing support for the next tranche release. Most people believe Greece will meet the target and Germany will approve. The EUR/USD pair is up at 1.3667 today in anticipation of German vote on EFSF. The GBP/EUR pair has remained strong at 1.1481.

USD: The Cable remained strong against the greenback yesterday though it lost some ground against the Euro. The Sterling is expected to remain weak as the prospect of another round of QE brightens by the day. Out today is net consumer credit data for the month of August. GBP/USD opens at 1.5680 today.

Elsewhere, both AUD and NZD weakened against the greenback yesterday. The Chinese Yuan rose to its highest level since July 2005.

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