Good morning and welcome to today’s foreign exchange market commentary on Friday the 6th of January.
As borrowing costs for France and Italy rose, apprehension over the health of European banks have come to haunt the markets again. French 10-year bond auction can be termed successful though yield was recorded at 3.29 per cent compared with 3.18 per cent, recorded in the December 1 auction. However, the bid-to-cover ratio almost halved to 1.64 from 3.05. The weak demand is a cause for concern since the European Central Bank approved loans worth €489.2 billion to the region’s 532 banks in a 3-year refinancing operation last month. Some analysts believe that the lowered confidence in French bonds points to the heightened risk of the country losing its coveted AAA rating.
Meanwhile, IMF Chief Christine Lagarde said today that the euro is unlikely to vanish this year. Well, that was a little diplomatic since she didn’t say it’s impossible, but ‘unlikely.’ Greece is also unlikely to quit the EU in 2012, she added though the jury is still out on whether Greece should quit the EU and rejoin at a later date.
Back home, the UK services sector sprung a pleasant surprise yesterday with a PMI reading of 54 against an expected reading of 51.5. This is indeed good news since all the three PMI reading have come on top and chances of the GDP contracting in Q4 looks unlikely now.
CURRENCY RATES OVERVIEW
GBP/EURO – 1.2118
GBP/US$ – 1.5494
GBP/CHF – 1.4785
GBP/CAN$ – 1.5794
GBP/AUS$ – 1.5136
GBP/ZAR – 12.6388
GBP/JPY – 119.55
GBP/HKD – 12.0345
GBP/NZD – 1.9860
GBP/SEK – 10.7388
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EUR: The common currency weakened against the greenback over the last 24 hours as EU continues to struggle. News from Italy’s largest bank UniCredit offering its right’s issue at 43 per cent discount spooked the market further. EFSF meanwhile sold bonds yesterday, proceeds of which will go to Portugal and Ireland. Greek may default on its obligations if unions didn’t accept further cuts in salaries, warned Prime Minister Lucas Papademos. Industrial New Orders in Europe also came at 1.8 per cent, lower than the expected 2.4 per cent, failing to cheer markets further. The GBP/EUR opens at a 16 month high of 1.2110 this morning.
USD: Negative EU sentiment has pushed the euro down against the dollar yesterday. The Sterling also changed hands at 1.5480, despite starting the day at 1.5580. US ADP Employment data, the barometer of non-farm payroll rise, came at 325,000 in December against the expected 176,000, beating projections by a wide margin. The GBP/USD pair opens at 1.5490 today morning.
Elsewhere, the antipodean currencies remained volatile against the greenback. The Pound remains flat against the commodity currencies and the GBP/AUD and the GBP/NZD pairs open at 1.5110 and 1.9816 this morning.
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Have a great day!
