Good morning and welcome to today’s foreign exchange market commentary on Thursday, the 3rd of May.
After the UK economy’s surprise contraction last quarter, the focus has shifted on the country’s central bank. BoE Governor Mervyn King accepted that regulating the banks and repairing the economy are two of the biggest challenges the bank has faced in decades. The central bank should have warned about the impending risks before the crisis struck.
The bank had missed the growing signs of danger because it was focused solely on inflation and miscalculated the aftermath if the financial risks crystallised, King said while giving a lecture for BBC. However, King gave no indication on a review into the central bank’s failures before and during the crisis. This contrasts with the Treasury and the Financial Services Authority, both of which have published analytical reports on the lessons learnt following the crisis. He however, said that he would be happy if the government commissioned a review of the whole regulatory framework.
The BoE would regulate the banks better than the FSA, he vowed adding that the government should implement the recommendations of the Independent Commission on Banking.
The BoE has been talking about risks for some time now, but with the benefit of hindsight, it could have done more, he admitted. The BoE will get more powers for banking supervision and regulatory stability from next year. However, MPS remain concerned that the BoE has too much power without sufficient checks and balances and may turn out to be a super citizen.
CURRENCY RATES OVERVIEW
GBP/EURO – 1.2307
GBP/US$ – 1.6176
GBP/CHF – 1.4792
GBP/CAN$ – 1.5941
GBP/AUS$ – 1.5702
GBP/ZAR – 12.501
GBP/JPY – 129.81
GBP/HKD – 12.5528
GBP/NZD – 2.0006
GBP/SEK – 10.921
EUR: Weak economic news took its toll on the single currency yesterday, especially after a string of weaker than estimated manufacturing PMI readings were announced. Unemployment in the Euro area rose to an all-time high of 10.9 percent and economic powerhouse Germany also saw its unemployment rate going up. The EUR/USD pair tumbled to a low of 1.3121 before settling slightly higher at 1.3121 as rumours went around that the ECB may intervene after the central bank’s meeting today. The pound continued with its winning ways touching a 23-month high of 1.2326 on weak EU data. To make matters worse for the euro, UK construction PMI reading came in higher while the same result from Spain, Greece and Italy missed targets. Needless to say, the market will stay focused on ECB President Mario Draghi’s press-conference following today’s meeting. The GBP/EUR pair opens at 1.2310 this morning.
USD: Yesterday’s higher than estimated UK construction PMI gave Sterling some breather and the GBP/USD pair rose to 1.6209 before losing steam. The cable found little support after MPC member Fisher indicated further asset purchase programs to halt the contraction. BoE Governor also spoke on similar lines, warning over the risks faced by British banks from the European crisis and the unexpected slowdown of the economy. The Pound remained weak for the day despite US new job numbers falling short of expectations, leaving investors to worry on the world’s biggest economies recovery. The GBP/USD pair is expected to be range-bound today ahead of tomorrow’s all important non-farm payroll release.
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Have a great day!