Exchange Rates and Market Commentary [16/01/2012]

Exchange Rates and Market Commentary [16/01/2012]

Good morning and welcome to today’s foreign exchange market commentary on Monday the 16th of January.

What the market has been anticipating for long finally took place on Friday as Standard and Poor’s downgraded France. The yield on French bonds didn’t shoot neither did there was much movement in CDS rates. The conclusion: the market had already factored in the event. However, the casualty of the latest round of downgrade may be the European lifeboat fund – the EFSF. S&P had already warned in December that any downgrade of the AAA EU members may result in the European Financial Stability Facility going down a few notches from the current ‘negative’ outlook.

The biggest news on Friday however, was not the downgrade of France (or Italy, Spain and Austria). But the breakdown of talks between Greece and the private investors over the amount of haircut was the biggest talking point on Friday. Talks with banks are expected to resume on Wednesday and failure to find a solution could lead to a disorderly default in March when the payments become due.

Meanwhile ECB Governing Council member Ewald Nowotny said on Sunday that the European Central Bank will do all it can to calm investor sentiments after the S&P downgrade. He advocated for a safety net for the region’s struggling members. He said S&P has certain misgivings about how Europe is tackling the debt crisis. The basic difference is that while the US Fed had intervened aggressively with liquidity measures, the EU is advancing via the fiscal consolidation path with restricted intervention by the ECB. This probably explains why the UK has managed to keep its top rating despite having high debts, he added.


GBP/EURO – 1.2064
GBP/US$ – 1.5294
GBP/CHF – 1.4592
GBP/CAN$ – 1.5604
GBP/AUS$ – 1.4831
GBP/ZAR – 12.4454
GBP/JPY – 117.52
GBP/HKD – 11.8891
GBP/NZD – 1.9268
GBP/SEK – 10.7076

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EUR: The single currency traced back its weekly gains on Friday as the news of ratings downgrade hit the market. The breakdown of talks between Greece and its bond holders didn’t help the euro either. The EUR/USD pair dropped to a low of 1.2623 while the GBP/EUR pair zoomed to 1.2087 by the end of trading. Eyes will be on France today as it hits the markets to raise €8 billion this afternoon. The GBP/EUR pair opens at1.2080 today morning.

USD: The US dollar index – a reading of the greenback against the six leading global currencies notched higher as risk sentiment worsened on Friday. The dollar gained as S&P down-rated 9 European countries and the University of Michigan confidence figure came in better than expected. A lower than expected UK PPI figure triggered a cable selloff and the GBP/USD touched a low of 1.5234 by Friday afternoon. Today being a holiday in the US, not much data is expected and the cable will be driven by broad market sentiments. The GBP/USD opens at 1.5297 today morning.

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