Good morning and welcome to today’s foreign exchange market commentary on Friday, the 20th of July.
The not-so-encouraging economic data from the US yesterday raised the same nagging question; is the recovery stalling? Of course US’ problem is not unique as many advanced economies are facing the same challenge. However, in a number of important ways, the US and European problems are different.
Europe’s leaders have always known where they want their economy to be. But knowing the future isn’t enough, you should also know how to put them into practice, something the EU leaders have failed at repeatedly.
The leaders agree now there should be a fiscal union backed by political union, and a monetary union backed by a banking union. However, there’s no clear understanding on when to and how to start them. A fiscal union means creating a European Treasury or authorising the European Council to veto national budgets that shows signs of fiscal profligacy. It also means mutualising part of members’ debts that become Eurobonds and a joint obligation and the EC eventually decides how many Eurobonds to issue.
Similarly political union means transferring sovereign prerogatives to the European Parliament that decides how to structure fiscal, monetary and banking, and political unions. The parliament would hold accountable the ECB and officials of EU who run the continent’s daily operations.
Finally, Banking union means empowering the region’s rescue funds to inject capitals directly into the undercapitalised banks and establish a union-wide common deposit guarantee scheme. It also means a single regulator authorised to close down erring and insolvent financial institutions.
CURRENCY RATES OVERVIEW
GBP/EURO – 1.2798
GBP/US$ – 1.5692
GBP/CHF – 1.5379
GBP/CAN$ – 1.5822
GBP/AUS$ – 1.5082
GBP/ZAR – 12.8625
GBP/JPY – 123.31
GBP/HKD – 12.1713
GBP/NZD – 1.9561
GBP/SEK – 10.8936
EUR: The recent weakness of the single currency against the cable continued on Thursday, pushing the GBP/EUR pair up to 1.2833, its highest level in 3-1/2 years. The high Spanish yield in yesterday’s auction and German finance minister’s comment over the Iberian nation’s solvency were probably two reasons for the euro’s weakness. However reports of the German Bundestag approving Madrid’s bank recapitalization bailout money eased pressure on the common currency somewhat, but it traded at fresh record lows against both the AUD and the NZD while hitting a new 12-year low against the SEK. The EUR/USD is expected to remain rangebound in the absence of any market moving tier-1 economic news data. The GBP/USD opens at 1.5692 this morning.
USD: On the back of a euro sellout yesterday that pushed the single-currency to a new fresh 3-1/2 year low, Sterling hit a 4-week high against the greenback in late afternoon trading even though UK June retail sales number fell short of expectations, the queen’s jubilee celebrations notwithstanding. The dollar remained flat against its global peers after the existing home sales, Philadelphia Fed Survey and initial jobless claims came in weaker than anticipated though chatters of QE3 grew louder. The data calendar from the UK is light today with only the Public Sector Net Borrowing numbers due in the morning and Sterling should remain well supported. GBP/USD opens at 1.5692 today morning.
Have a great weekend!