Good morning and welcome to today’s foreign exchange market commentary on Wednesday the 7th of December.
German Chancellor Angela Merkel’s proposal to enact tough new laws for closer fiscal union may not see the day of the light. A leaked report, prepared by European Council President Herman Van Rompuy, suggests ‘a new fiscal compact’ that does not require national referendums or ratifications by the parliaments. The report, a stark contrast to France and Germany’s attempt to push stricter fiscal rules, notes instead of pushing a new treaty, amendment of one key treaty in the existing framework, called protocol 12, will do the trick. Such a move will be considerably quicker than the Sarkozy-Merkel plan and would not require extensive changes in treaties though national consensus may be sought.
The report outlines four major steps to help solve the present crisis the region is witnessing. EU memner states need to ensure national debt remains under 60 per cent of GDP and domestic budget deficit doesn’t breach the 3 per cent limit. The European Financial Stability Facility – the region’s bailout fund, should be able to borrow from the European Central Bank directly and countries tapping the bailout fund will have to adhere to austerity plans imposed by the European Council. It also says countries facing higher budget deficits need to guarantee they will maintain a balanced budget in the medium-term. However, greater changes may ultimately require treaty alterations the report maintains. To maintain credibility of the area’s budgetary rules, it is crucial to implement rule changes and ensure compliance, the note concludes.
CURRENCY RATES OVERVIEW
GBP/EURO – 1.1624
GBP/US$ – 1.5616
GBP/CHF – 1.4439
GBP/CAN$ – 1.5761
GBP/AUS$ – 1.5207
GBP/ZAR – 12.4588
GBP/JPY – 121.33
GBP/HKD – 12.1472
GBP/NZD – 1.9942
GBP/SEK – 10.4926
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EURO: The USD and the GBP remained range-bound against the single currency on Tuesday as investors eyed the weekend EU leader’s summit in anticipation. The spotlight was on Standard & Poor’s as the ratings agency warned that the EFSF could sustain a rating cut if any of the six AAA nations backing the fund themselves suffer a downgrade. The GBP continued to underperform against the EUR and the GBP/EUR pair fell to 1.1623 from 1.1700 during London close. GBP/EUR pair opens at 1.1630 today morning as the market waits for German industrial production numbers today.
USD: The greenback remained largely subdued on Tuesday as the market chose to wait for the weekend EU summit. The greenback however gained marginally over S&P’s warning on the European lifeboat fund. The GBP was particularly hit, selling off from its intraday high of 1.5665 to 1.5560 and remained weak against the greenback throughout the day. The GBP/USD pair opens at 1.5619 today morning as the market waits for UK industrial production numbers.
Elsewhere, the antipodean currencies traded higher against the USD. The Swiss franc continues to come under pressure as the Swiss National Bank talks about hiking the EUR/CHF floor-rate.
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Have a great day
