Good morning and welcome to today’s foreign exchange market commentary on Friday the 25th of November.
Despite the US markets remaining shut on Thanksgiving Day, yesterday was still eventful. Two sovereign downgrades took place to begin with. Fitch lowered Portugal to ‘junk’ while Hungary was cut to BA1 after it approached the IMF last week seeking another bailout. In a strange reversal of fortunes, yield on UK’s 10-year notes dropped below Germany for a few hours yesterday, coinciding Bank of England’s next quantitative easing launch plan. The markets corrected the anomaly later, and those who had sleepless nights over German bonds remaining uncovered two days back can take heart as the bunds ended the day firmly. The Dutch – who have formed a European northern bloc along with the Germans and the Finns with stricter fiscal policies, said they will support any move to extend the ECB’s mandate. This was definitely a positive development.
Chancellor Markel however maintained her stated opposition against widening the ECB’s role. Her resistance to the central bank becoming the lender of last resort is understandable. However, Germany’s continued opposition to the proposal can very well put the euro’s future at stake. After she reiterated her line in Strasbourg yesterday with Italian Prime Minister Mario Monti and French President Nicholas Sarkozy by her side, Italy’s bond yields breached the unsustainable 7 per cent level again.
At a press conference later, Monti said though he supported a stronger fiscal union for Europe, a Eurobond issue could contribute to the present crisis significantly. Sarkozy later clarified that he and Chancellor Markel will present a reforms package for the union at the upcoming Dec. 9 summit.
CURRENCY RATES OVERVIEW
GBP/EURO – 1.1622
GBP/US$ – 1.5553
GBP/CAN$ – 1.6264
GBP/AUS$ – 1.5954
GBP/ZAR – 13.26
GBP/JPY – 120.04
GBP/NZD – 2.0906
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Euro: The single currency got a boost yesterday following a strong German IFO data. However, the day high of 1.3400 against the greenback proved short-lived as Chancellor Markel shot down the ECB expansion proposal. The situation got compounded after it was revealed that Belgian bank Dexia is now surviving on emergency liquid funds. The euro opened weaker at 1.265 against the USD today morning while it’s trading about 1.1650 against the pound.
USD: Sterling fell to 1.5449 against the USD overnight as the EU continued with its wrangling. UK’s Q3 GDP data, though came as per market expectations at 0.5 per cent, was clearly inadequate to cheer the cable. The GBP/USD pair opens at 1.5465 this morning.
Elsewhere, the antipodean currencies remained weak against the greenback yesterday. Both the GBP/AUD and GBP/NZD pairs opened steady against the cable at 1.5945 and 2.0870 today morning.
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Have a great day!