Good morning and welcome to today’s foreign exchange market commentary on Monday, the 23th of April.
The results of the first round of French presidential election are out and socialist candidate Francois Hollande outpaced present incumbent Nicholas Sarkozy. The chances of added volatility in global markets skyrocket. Yes, the smaller ice-bergs like Ireland, Portugal and Greece were always there and the giants like Spain and Italy were getting more visible. But the most dangerous of them all, France, has now taken the centre-stage.
Hollande’s ascent could destabilise the eurozone. His promises of increasing government spending, raising the minimum wage, reducing the working week and pension age and hiking the tax rate to 75 percent, are diametrically opposite to what all the nations fighting the crisis intend to do. French credit worthiness has already nosedived, but more importantly a socialist victory will destabilize the power balance inside the EU.
The northern bloc of Netherlands, Finland, Germany and Austria will now be in minority against the remaining thirteen members. With Gremany’s increasing reluctance to underwrite the EZ, it’s difficult to believe that Paris will adhere to a fiscal prudence bill, widely seen as a German decree. In other news, watch out for problems in Holland as a snap election could well be on the cards.
Lastly, the ECB’s LTRO liquidity dose has worked only partially since eurozone banks have decided to hoard the “Safe” German bonds, driving the yield spread between North and South further.
CURRENCY RATES OVERVIEW
GBP/EURO – 1.2228
GBP/US$ – 1.6099
GBP/CHF – 1.4698
GBP/CAN$ – 1.6012
GBP/AUS$ – 1.5592
GBP/ZAR – 12.6091
GBP/JPY – 130.851
GBP/HKD – 12.4996
GBP/NZD – 1.9741
GBP/SEK – 10.915
EUR: The single currency got a boost on Friday over a strong German IFO number. The nine-month high number was well received by the markets and sentiments were further buoyed by positive news from the IMF meeting in Washington. The announcement of over $400 billion in fresh funding from the IMF to fight the region’s debt crisis calmed markets as Spanish yields had topped the 6 percent mark shortly in the day’s trading. The focus this week is expected to remain over France though eurozone PMI numbers are expected to attract attention as well. The GBP/EUR pair opens at 1.2235 this morning.
USD: The cable hit a multi-month high of 1.6149 against the greenback on Friday on the back of strong retail sales number. The retails sales grew at 1.8 percent in March, a reading not seen since Jan 2011. There was not data due from the US on Friday and risk appetite was well supported on stronger German IFO and UK retail sales numbers. However, the GBP/USD pair may witness some choppiness ahead as Q1 GDP data becomes due. GBP/USD opens at 1.6090 this morning.