Good morning and welcome to today’s foreign exchange market commentary on Wednesday, the 9th of May.
The economic and political developments in Europe never fail to surprise, or so one would like to believe. A recent observation suggests developments over the past six months show that the single currency is incompatible with democracy in the first place. For example, Italy and Greece got new Prime Ministers, replacing elected public representatives. The recent austerity measures have been rejected by Greece and France, putting the future of the euro at risk. The austerity tag seems to be too costly for EU member states where people have started rejecting them wholeheartedly.
In modern day economics (and the associated politics), governments have tried to integrate globalization with democracy and nation statehood. However, a research Harvard Economist for Dani Rodrik shows that three can seldom go hand-in-hand. You need to kiss nation statehood goodbye and embrace global federalism if you want globalization and democracy. Democratic politics leaves little room for national identity that allows nations to benefit from unrestricted financial and economic markets, the main idea behind the euro project. The weekend developments have precisely proven that point.
CURRENCY RATES OVERVIEW
GBP/EURO – 1.2424
GBP/US$ – 1.6142
GBP/CHF – 1.4933
GBP/CAN$ – 1.6150
GBP/AUS$ – 1.6006
GBP/ZAR – 12.76
GBP/JPY – 128.79
GBP/HKD – 12.5290
GBP/NZD – 2.0535
GBP/SEK – 11.0840
EUR: The single currency continues to slide as investors seek the relative safety of GBP following Greek elections on Sunday. As Athens struggles to form a coalition, the situation got compounded further after leader of the left-leaning Syriza Party Alexi Tsipras said he would tear up the Greek bailout agreement. The GBP/EUR pair hit a near four hear high of 1.2444 and the cable is expected to continue its northward march as long as doubts persist over the viability of austerity measures. There’s a growing chatter of an imminent Greek exit, which if true, may push the GBP/EUR pair past the 1.3000 level. There’s not much data expected from Europe today except for French trade balance data, so European politics will continue to guide the single currency’s movement today. The GBP/EUR opens at 1.2433 this morning.
USD: The cable remained range-bound against the dollar on Tuesday and hit a low of 1.6142 as risk remained off the table. The GBP/USD pair had earlier hit a high of 1.6183, but tumbled after overnight data released by the BRC showed UK like-for-like retail sales dropped 3.3 percent in April over the same period in 2011 and permanent job creation declined in the UK in April. There’s not much economic news coming out from the UK and the US and the ongoing political drama in Europe would ensure that the greenback remain well supported. The GBP/USD pair opens at 1.6151 this morning.
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Have a great day!