Good morning and welcome to today’s foreign exchange market commentary on Wednesday the 25th of January.
The domestic economy doesn’t look good and February may witness another round of liquidity injection by the Bank of England. The economy has nearly stagnated despite the central bank keeping rates at 0.5 pc for nearly a year now. GDP growth for the last three months in 2011 was recorded at 0.1 pc while the country’s debt has breached the £1 trillion mark for the first time in history. There’s still room for more quantitative easing measures as the debt-GDP ratio remains well below 100 pc (64.2 pc, for Greece it remains at 160 pc). However, the UK needs to reduce its dependence on the EU and look to kick-start exports in the new and emerging markets, if it wishes to avoid a double-dip recession.
The IMF issued warnings yesterday saying growth in 2012 will be too sluggish in the world’s advanced economies to make any dent in the prevalent high unemployment rate. Britain’s growth outlook for 2012 was cut to 0.6 pc from earlier 1.6 pc and the country is expected to bounce back to growth of 2 pc in 2013. UK’s official growth outlook stands at 0.7 pc for 2012.
IMF’s chief economist Oliver Blanchard said the global growth may stall in 2012. Under a risk scenario analysis that excludes the possibility of the euro break-up, IMF predicts a global growth rate of just 1.3 pc from the projected 3.3 pc for the year.
To stimulate growth in the region, the IMF had urged countries with ‘fiscal space’ to moderate their austerity measures since it reduces government spending and affects the economy’s growth. Treasury officials however, stressed that the IMF was not referring to the UK. Now that the country’s debt has crossed the trillion pound mark, it’s critical for the country’s future that the deficit is dealt with decisively. The country’s borrowing is lower than same time last year and is on track to hit the £127 billion spending-cut mark in 2011-12.
CURRENCY RATES OVERVIEW
GBP/EURO – 1.1984
GBP/US$ – 1.5609
GBP/CAN$ – 1.5783
GBP/AUS$ – 1.4834
GBP/ZAR – 12.40
GBP/JPY – 121.73
GBP/NZD – 1.9242
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EURO: The deadlock over Greek debt swap deal undermined the common currency yesterday. The situation was aggravated further as Swedish Finance Minister announced that the Greek debt deal has failed, triggering a sell-off that pushed the EUR/USD pair to a session-low of 1.2960. However, the euro quickly reclaimed the 1.3000 level after German, French and other eurozone PMI numbers came in stronger than anticipated. The EUR/USD pair opens at 1.3007 this morning. Cable dropped against the single currency despite gaining in early trade over less than projected public debt figures. The GBP/EUR pair opens at 1.1976 this morning.
USD: The Sterling gained against the greenback in the past 24 hours over better than expected public debt numbers in the UK. The dollar comes under pressure today as the FOMC data is due today. A Japanese trade deficit for the first time since 1980 also played on the dollar as Tokyo might intervene to weaken the Yen in an effort to boost exports. The FOMC is expected to continue with their near-zero benchmark interest rate. GBP/USD opens at 1.5544 this morning.
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Have a great day!
