Exchange Rates and Market Commentary [06/10/2011]

Exchange Rates and Market Commentary [06/10/2011]

Good morning. The euro strengthened against the greenback today after a top official said policymakers are contemplating to recapitalise the region’s banks in a coordinated fashion. The market is expecting intervention by EU leaders to ring-fence the region’s banks from Greek debt crisis.

More bad news continued to flow from the eurozone with the region’s services PMI revised lower to 48.8 in September from the earlier 49.1, the lowest since mid 2009. Spain and Italy also slipped along with Germany. Only Ireland and France showed expansion in services PMI, though sustainability remains a big question.

The UK services sector however, sprung a surprise with a clear expansion in services PMI activity. The reading was 2.3 notches higher than the expected reading of 50.6. On the flipside however, economic growth was revised downwards. Across the Atlantic, the US added 91K jobs and non-manufacturing data came as expected. This should come as a boost for the market and a double dip-recession may not be imminent. Bank of England’s meeting today may not result another round of QE and the MPC may decide to wait for the Q3 GDP and inflation numbers before deciding of further government asset purchase.

The ECB may also choose to put another rate hike on hold, and may support the region’s banks by opening more credit lines. The region’s inflation was recorded at 3% year-on-year basis last Friday and a rate cut may not come immediately.

CURRENCY RATES OVERVIEW

GBP/EURO – 1.1552
GBP/US$ – 1.5417
GBP/CHF – 1.4251
GBP/CAN$ – 1.6047
GBP/AUS$ – 1.5930
GBP/ZAR – 12.2889
GBP/JPY – 118.34
GBP/HKD – 12.0055
GBP/NZD – 2.0104
GBP/SEK – 10.5745

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EURO: The single currency gained against the USD and the GBP for the second straight day yesterday as risk sentiment improved. The currency was supported over IMF’s Borges talking about recapitalizing European banks and Germany’s Markel supporting him saying the EFSF can be used for the purpose. The EUR/USD opens at 1.3383 this morning and EUR/GBP begins the journey at 0.8638.

USD: Sterling weakened against the greenback yesterday as investor’s remain unsure about BoE’s monetary measure later this morning. After second quarter’s growth was revised down to 0.1%, the prospect of another round of quantitative easing has diminished significantly. However, the Cable’s movement will be decided by BoE’s announcement after MPC meeting today.

Elsewhere, the Swiss Franc slipped to its lowest against the Euro in last two weeks. The Sterling has been weakening against both the NZD and the AUD for the last few days. GBP/AUD and GBP/NZD pair begins the day at 1.5890 and 2.0053 respectively.

Have a great day.

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