Exchange Rates and Market Commentary [27/01/2012]

Exchange Rates and Market Commentary [27/01/2012]

Good morning and welcome to today’s foreign exchange market commentary on Friday day the 27th of January.

The markets were busy over UK GDP numbers and Fed monetary policy announcements for the last two days and the ongoing Greek PSI negotiations were kind-of put on the backburner. However, the Greek debt issue again took the centrestage after rumours hit the market about a deal being agreed upon hedge funds and Athens. A Greek newspaper reported that private investors have consented to accept a lower 3.75 pc interest in exchange for their current holdings. This would translate into a 70 pc ‘haircut’ for the holders of Greek debt, effectively wiping €100 billion ($130 billion) off the country’s outstanding €350 billion worth debt. However, the European Central Bank, which holds Greek debts worth €45 billion, has ironically remained silent and has ignored calls for it to accept losses. The Chief of the International Monetary Fund Christine Lagarde had spoken about involving the public sector to fight the Greek debt crisis, only to be rebuked by the Germans. Jean-Claude Juncker, head of the Eurogroup of eurozone finance ministers, urged Greece’s creditor countries to write-off portion of the debt.

Meanwhile Prime Minister David Cameron launched a broadside against the EU in Davos, stating the euro doesn’t have the qualities of a single currency. An ongoing EU crisis can drag the UK back into recession and the PM is under pressure at home to stop Europe from imposing too many rules on Britain. Excessive bureaucracy and a raft of taxes are throttling growth in the region, he noted. The proposed financial transaction tax – that resulted in much controversy after a series of exchanges with the French and Germans, will destroy half a million jobs, warned Mr. Cameron.

One important development that has largely gone unnoticed is another crisis looming over Portugal. The country’s 15-year debt yield is slowly moving towards the 15 pc mark at a time when the ECB has injected liquidity of about half a trillion Euros through LTRO. This certainly merit attention.

CURRENCY RATES OVERVIEW

GBP/EURO – 1.1982
GBP/US$ – 1.5668
GBP/CHF – 1.4454
GBP/CAN$ – 1.5741
GBP/AUS$ – 1.4778
GBP/ZAR – 12.2922
GBP/JPY – 120.88
GBP/HKD – 12.169
GBP/NZD – 1.9104
GBP/SEK –  10.659

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EURO: The common currency traced back some of its recent gains against the greenback and the cable yesterday. The deadlock in Greek PSI negotiations continues, but chances of an early agreement have brightened now. Portugal is another worry that may require a Greek-style second bailout or debt restructuring in the coming days. That put Italy also under the scanner. The EUR/USD pair sits at 1.3112 while the GBP/Pound pair opened at 1.1972 today.

USD: Cable remained range-bound against the greenback yesterday though UK retail sales number recorded its biggest fall in three years. Durable goods orders in the US grew by 3 pc against the predicted 2.1 pc bringing some cheer in the markets, though the euphoria was short-lived after below-par new home sales and unemployment numbers came in. The GBP/USD pair opens at 1.5695 today morning.

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Have a great weekend!

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