Exchange Rates and Market Commentary [14/10/2011]

Exchange Rates and Market Commentary [14/10/2011]

Good morning. Though the market was not hit by any unexpected bad news yesterday, it was a day of mixed developments. Good news came from the EU region as Italy managed to raise €6.19 billion by selling bonds at a yield of 5.32%, down from 5.60% at a similar auction previously, despite suffering sovereign downgrade recently. Prime Minister Silvio Berlusconi faces a confidence vote in the parliament today, his eighth such vote in 2011 and ninth in the past twelve month, which took a heavy toll on the Italian stock market yesterday.

The day’s other positive development was the Slovakian parliament passing the EFSF expansion bill. The head of EFSF said the later that the facility can now become fully functional. He was confident that the EU leaders have the substance to respond to what the market needs. Nobody will benefit more than Athens with Slovakia’s assent to EFSF expansion.

The day’s negative development was Standard & Poor’s downgrading Spain’s credit rating by one notch. Not entirely surprising since Fitch had already downgraded the country last week. S&P cited similar reasons of slow growth and high debt levels.

Following Moody’s footsteps, Fitch downgraded 15 banks in the eurozone, including RBS and Lloyds of UK. Barclays was spared the axe, but put on negative watch. Difficult time ahead for the banks and may need government support for further recapitalization.

CURRENCY RATES

GBP/EURO – 1.1432
GBP/US$ – 1.5756
GBP/CHF – 1.4148
GBP/CAN$ – 1.6071
GBP/AUS$ – 1.5557
GBP/ZAR – 12.3421
GBP/JPY – 121.44
GBP/HKD – 12.2720
GBP/NZD – 1.9812
GBP/SEK – 10.4710

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EURO: The ECB’s monthly report yesterday said the region’s downside potential has increased, weighed on the single currency against the greenback. However, the euro managed to recover later after Slovakia approved the EFSF expansion. The GBP/EURO hovered around 1.1363 as negative sentiments remained. The market is observing the G20 finance minister’s meet keenly and related development on Greece. GBP/EUR pair opens at 1.1435 today morning.

USD: Sterling weakened against the USD yesterday and the pair failed to break the 1.5800 barrier. The better than expected British trade balance figure didn’t have any effect on the pair. There’s not much development expected on the other side of the Atlantic.

Elsewhere, the AUD started strong yesterday over highest employment data in 4 months, but the AUD/USD pair slid back to the 1.0100 level. The GBP/AUD and GBP/NZD pairs however, were mostly range bound yesterday. The GBP/AUD and GBP/NZD pairs open at 1.5410 and 1.9784 respectively.

Have a great day.

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