Good morning and welcome to today\u2019s foreign exchange market commentary on Wednesday the 28th of December.
\nThe continuing EU crisis continues to weigh down investor sentiments globally as the euro remained subdued yesterday, though it managed to float above its recent 11-month low while eyes remain fixed on a scheduled Italian bond sale later this week. The currency is expected to be range bound and can come under pressure after German CPI data and Italy\u2019s \u20ac8.5 billion bond sale takes off on Thursday.<\/p>\n
Meanwhile, the much touted \u2018Sarko Trade\u2019, where the ECB had lent \u20ac489 billion to the region\u2019s 523 banks to ease the liquidity crunch and ensure they buy EU member country bonds to keep borrowing costs low, seems to have no effect. EU banks over-night deposits went up to \u20ac452 billon with the ECB, the highest since euro\u2019s introduction in 1999. Banks have chosen to deposit money at 0.25 per cent while the ECB have lent them the cash at 1 per cent, thus incurring losses. It remains to be seen whether banks buy up Italy\u2019s debt tomorrow to keep borrowing costs low. Some analysts however termed parking of excess liquidity as routine since market activity remains muted during the festive period with little lending-borrowing taking place.<\/p>\n
The UK government is meanwhile preparing for a full-blown euro crisis. The Treasury is working on plans to control flow of capital in and out of the UK and would be implemented if similar measures are taken across Europe to ease the switch to new currencies. If a weak member chooses to quit the EU, investors would rush to withdraw cash from that country and other peripheral EU states to transfer funds in safer havens. A heavy inflow will drive the Sterling up, widening Britain\u2019s trade deficit dangerously and hampering British exports.<\/p>\n
GBP\/EURO \u2013 1.1985
\nGBP\/US$ \u2013 1.5660
\nGBP\/CHF \u2013 1.4638
\nGBP\/CAN$ – 1.5965
\nGBP\/AUS$ \u2013 1.5414
\nGBP\/ZAR \u2013 12.7560
\nGBP\/JPY \u2013 121.80
\nGBP\/HKD \u2013 12.1790
\nGBP\/NZD \u2013 2.0246
\nGBP\/SEK \u2013 10.7262<\/p>\n