Good morning and welcome to today’s foreign exchange market commentary on Thursday, the 10th of May.
The markets continue to waver as Europe witness heightened political tension, particularly from Greece. Spain salvaged its fourth largest listed lender Bankia by nationalizing it, thus dispelling fears of an imminent banking collapse. The government announced it would convert a state-guaranteed loan of €4.465 billion into equity in the parent company. This is marked departure by the govt. that had refused to bail out private banks using government money. Though the bank is yet to finalise a formal restructuring plan, the latest development will provide the beleaguered financial sector with some relief.
Meanwhile European Central Bank board member Joerg Asmussen said it’s imperative for Spain to shore up its banks, adding that Madrid should order independent audit of its banks to regain market trust. He also urged Madrid to set up a bad bank to separate distressed loans. Spain is expected to issue new lending guidelines that require banks to allocate more capital for real estate loans. Asmussen said the central bank favours using the lifeboat funds like EFSF and ESM to rescue the region’s banks, a move that Germany opposes. He said the funds should be given under strict supervision with “repayment guarantees,” but regretted the absence of such a mechanism now.
CURRENCY RATES OVERVIEW
GBP/EURO – 1.2457
GBP/US$ – 1.6143
GBP/CHF – 1.4965
GBP/CAN$ – 1.6146
GBP/AUS$ – 1.5964
GBP/ZAR – 12.86
GBP/JPY – 128.69
GBP/HKD – 12.5322
GBP/NZD – 2.0482
GBP/SEK – 11.1019
EUR: The single currency breached the psychologically important 1.3000 level against the greenback before settling at 1.2912 for the day. The Pound surged to a fresh 3-1/2 year high against the euro as political turmoil continued to weigh on investor sentiments. Alexi Tsipras of the Syriza Party failed to form a government, triggering rumours of another round of elections in June. The sentiment remained bearish amid chatters of EU withholding €5 billion of aid money if Greece fails to adhere to austerity measures it had pledged. The GBP/EUR hit a high of 1.2493 overnight, a level not seen since Nov 2008. The cable may breach the 1.2500 level against the euro as the BoE is unlikely to announce any rate change today, thus strengthening the “safe haven” status of Sterling. The euro may witness some sharp fall in the days ahead as a Greek exit is being seen as a distinct possibility by market participants. The GBP/EUR opens at 1.2440 this morning.
USD: The Pound retreated against the greenback to a two-week low of 1.6066 on a day when it had hit a three-year trade weighted high against a basket of other currencies. The cable started the day weak as BRC retail sales data came in softer than anticipated, but its loss as the day progressed as the Pound remained well supported at crosses. The BoE interest rate decision is due today noon and Sterling is unlikely to make much headway against dollar should the central bank put further QE on hold. March Balance of Trade and weekly jobless claims are due today from the other side of the pond, with the latter deciding the market’s movement today. GBP/USD opens at 1.6100 this morning.
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Have a great day!