Exchange Rates and Market Commentary [05/01/2012]

Exchange Rates and Market Commentary [05/01/2012]

Good morning and welcome to today’s foreign exchange market commentary on Thursday the 5th of January.

There was no negative news from the EU yesterday, yet the single currency got hammered. German bund auction was partially successful with the yield averaging only 1.93 pc per annum with a bid-to-cover ratio of only 1.3. The response was lukewarm and investors can’t really be blamed for that. When Italian debt yields close to 7 pc, it’s difficult to invest in German securities that will yield a fraction of what Rome offers to raise funds, both being denominated in the same currency. The difference couldn’t be starker. A fiscal compact is indeed the way forward, though it will probably trigger a recession in some of the member countries. The biggest challenge of course lies in convincing the members not to discard the common currency in the face of people’s anger.

Meanwhile the British economy is not looking good as the EU crisis drags on. The Bank of England’s Credit Conditions Survey showed demand for credit among small businesses dipped in Q4 and bank’s expected credit demand to fall across the board. The survey also showed default rates rose for the first time in two years and banks expected the situation to worsen further.

CURRENCY RATES OVERVIEW

GBP/EURO – 1.2054
GBP/US$ – 1.5588
GBP/CHF – 1.4721
GBP/CAN$ – 1.5821
GBP/AUS$ – 1.5156
GBP/ZAR – 12.8080
GBP/JPY – 119.79
GBP/HKD – 12.1108
GBP/NZD – 1.9890
GBP/SEK – 10.6742

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EUR: The Euro came under pressure yesterday with the partial success of German bund auction and retraced all the gains of the last few sessions. The common currency hit its lowest in 14 months against the Sterling as well. France is in line today to raise €8 billion by selling OAT long-term debt today. The EUR/USD pair dropped to 1.2870 today from yesterday’s 1.3050.

USD: The cable has been remained nearly flat against the greenback over the last 24 hours. Construction PMI data came in better than expected, boosting the Pound further. The GBP/USD pair opens at 1.5575 today with eyes on French auction due today.

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Have a great day!

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