Good morning and welcome to today’s foreign exchange market commentary on Thursday the 8th of December.
The rumour mills are working overtime, and new rumours are popping up before the old ones are quashed. There were talks that eurozone leaders have agreed to keep the current bailout fund – the European Financial Stability Facility, going alongside the newly proposed European Stability Mechanism – expected to start in early summer 2012. The combined firepower of the two funds was thought to be big enough to take care of the current debt crisis. However, German officials are said to be against any changes to how he funds will be used. Germany’s tough stance sent the market in a spin, wiping off gains made by the common currency during the day.
Last night’s cracker was that the IMF may extend $600 billion in assistance to pay for the new fund. This was in addition that the IMF itself may have to raise money from contributing governments. However, the rumours were denied immediately. The situation was exacerbated further after Standard & Poor’s downgraded several European banks including BNP, Barclays, Commerzbank, UniCredit, SocGen, Deutsche Bank, Rabobank, Intesa Saopaolo, Credit Agricole and Ulster. So ultimately it comes down to the ECB to announce some kind of rescue measure in tomorrow’s meeting.
The market is factoring in a 0.25% rate cut along with extra liquidity measures to help the banks stay funded. Though these measure will not take care the basic problems of the EU, i.e. – better fiscal discipline, it will certainly help the banks carry on with their businesses. Today morning’s positive development was LCH Clearnet’s announcement that it was cutting the margin requirement on trading Italian debts. This certainly indicates that some confidence over Italy’s financial health is returning.
CURRENCY RATES OVERVIEW
GBP/EURO – 1.1701
GBP/US$ – 1.5698
GBP/CHF – 1.4493
GBP/CAN$ – 1.5849
GBP/AUS$ – 1.5270
GBP/ZAR – 12.6355
GBP/JPY – 121.81
GBP/HKD – 12.6355
GBP/NZD – 2.0096
GBP/SEK – 10.5531
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EUR: The single currency suffered against the major currencies yesterday over news of higher lending by the ECB to Italian banks in November. The GBP/EUR pair rallied to an intraday high of 1.1746 before profit-booking brought the pair down towards 1.1700. The EU leaders meeting are due to start in Brussels today and we also have the ECB interest rate decision today afternoon. The EUR/GBP pair opens at 1.1711 this morning.
USD: The greenback gained against the cable yesterday after the release of lower-than-expected industrial production figures for October. The cable came crashing below the 1.5600 level before jumping to 1.5725 on news of large M&A deal flows. No surprise policy decisions are expected today as the Bank of England announces the interest rate decision today. The GBP/USD pair opens at 1.5709 today morning.
Elsewhere, the Australian dollar gained after better than expected GDP number came in. The Reserve Bank of Australia has initiated rate cuts despite strong GDP growth over slowdown fears in China.
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Have a great day
