Good morning and welcome to today\u2019s foreign exchange market commentary on Tuesday the 6th of December.<\/p>\n
The new EU treaty that we talked about yesterday to bring in more fiscal discipline in the eurozone may include a \u2018commitment not to force private sector bondholders\u2019 to book losses on future EZ bailouts. This principle probably explains the sudden rally of Italian sovereign securities that we saw yesterday. However, the mood changed after rumours hit the market that ratings agency S&P may downgrade 15 European nations at about 19.00 UK time. This was formally confirmed at about 21.00 UK time and the failure of politicians to find a solution to the region\u2019s debt crisis was cited as the reason. Unfortunately, the list has the names the stronger economies in the region including Germany, Finland, France and the Netherlands \u2013 all AAA economies.<\/p>\n
The prospect of another round of rate cut by the European Central Bank brightened after ECB President Mario Draghi said the bank had a responsibility to ensure inflation did not undershoot the targeted 2 per cent, not just arresting an overshoot. The move is likely to offer ultra-long liquidity facilities to banks currently struggling with their liquidity positions. The markets have reacted positively to the latest developments. One of the main gauges of market expectations \u2013 the Euribor futures, indicate a rate cut this month and some more later.<\/p>\n
The recent jump in overnight bank deposits with the ECB highlights the freeze in interbank lending activities. To prevent the bloc\u2019s economy choking, the ECB may extend the term of loans to banks to 2 or even 3 years. The extra-long liquidity 1 year tenders were first introduced by the ECB in June 2009 and renewed offers to lend banks in two separate operations this year.<\/p>\n
GBP\/EURO \u2013 1.1681
\nGBP\/US$ \u2013 1.5614
\nGBP\/CHF \u2013 1.4501
\nGBP\/CAN$ – 1.5902
\nGBP\/AUS$ \u2013 1.5328
\nGBP\/ZAR \u2013 12.6120
\nGBP\/JPY \u2013 121.42
\nGBP\/HKD \u2013 12.1514
\nGBP\/NZD \u2013 2.0128
\nGBP\/SEK \u2013 10.5901<\/p>\n