Good morning and welcome to today’s foreign exchange market commentary on Friday, the 22nd of March.
There are a handful of optimists still left in Cyprus, probably because of recent huge gas-reserve finds off its coasts. However, it’s too early to put hard and credible numbers for the island nation’s potential resources boom. Rough estimates suggest 7 trillion cubic feet of the fuel is stored under deep water in the Aphrodite gas field.
Technically speaking, that’s a lot. It can take care all of German requirements for three years, or Cyprus’ own requirements for the foreseeable future. There can be even more, if one goes by the indications of Israel’s giant Leviathan field, just 20 miles away. Some experts believe Cyprus is sitting on a combined gas reserve of 60 trillion cubic feet.
The current estimated reserve of 7 tcf is alone worth $80 billion, or three times Cyprus’ GDP. However, not all of it can be extracted. Nicosia hopes to start exporting liquefied natural gas from 2019. That sounds optimistic, given deep sea projects have a history of cost and time overruns. That aside, a project of that size can cost anywhere between $7 billion and $15 billion to complete, a substantial chunk of the nation’s GDP.
A plan to ship gas to mainland Europe through submarine pipes is filled with political risks. Turkey is upset with Cyprus’ pursuit of offshore gas reserves. Since the other half of Cyprus continues to be under Turkish control, it’s unlikely any private investment will flow unless some compromise is reached.
It’s impractical for Russian behemoths like Gazprom to bank on the elusive promises of the Mediterranean Sea, as it is premature for Cyprus or its creditors to count on gas riches for saving the day.
CURRENCY RATES OVERVIEW
GBP/EURO – 1.1758
GBP/US$ – 1.5178
GBP/CHF – 1.4362
GBP/CAN$ – 1.5586
GBP/AUS$ – 1.4558
GBP/ZAR – 14.1512
GBP/JPY – 143.72
GBP/HKD – 11.7782
GBP/NZD – 1.8248
GBP/SEK – 9.8430
EUR: The euro edged lower against the US dollar yesterday after the European Central Bank gave Cyprus until Monday to raise the EUR 5.8 billion capital required for the bailout agreement. The single-currency came under additional pressure after data showed Eurozone manufacturing contracted at the fastest rate in three months, dashing hopes of a recovery. Euro traded at $1.2914 compared to $1.2933 late Wednesday. Ratings agency S&P downgraded Cyprus to CCC with a negative outlook, citing risks of a disorderly credit event. Cyprus may lose emergency liquidity assistance from the ECB if it fails to cut a deal with the EU and IMF by Monday. Euro remains vulnerable to developments in Cyprus.
USD: The US dollar weakened slightly yesterday though equity markets retreated after Oracle Corp reported disappointing quarterly result that missed estimates of both sales and profit. The ICE dollar index, a gauge of the US currency’s strength against a basket of six global currencies, fell to 82.743 from 82.852 late Wednesday. The pound climbed to $1.5170 from $1.5102 the prior day after retail sales data came in well ahead of expectations. Also UK public sector borrowing came in at GBP 4.4 billion, better than the GBP 8.4 billion estimated by analysts. US data was also positive with Philly Fed manufacturing reading and unemployment claims beating expectations. Existing home sales also showed improvement, but risk was taken off the table as an unexpected drop in German manufacturing PMI offset positive moods. No data is expected from the US or UK today and the EUR/USD pair can slide below 1.280 as the EU-imposed deadline on Cyprus looms. GBP/USD is trading close to the 1.520 level.
Have a great weekend!
