Good morning and welcome to today’s foreign exchange market commentary on Tuesday, the 14th of February.
The market’s positive sentiment over the Greek debt resolution was disrupted as attention got diverted to the rest of Europe. Ratings agency Moody’s cut ratings and outlook on nine European nations. This should act as a wake-up call for European leaders to get their house in order. Italy, Spain and Portugal along with Malta, Slovenia and Slovakia suffered downgrades while Britain, France and Austria got warning over the vulnerability of their economies due to the ongoing crisis. The ratings agency also wondered if the EU is doing enough to deal with the issue. It said both the UK and France may lose their coveted AAA rating in future and changed the outlooks for Austria, France and Britain to negative citing specific credit pressures that may make the balance sheets of the sovereigns susceptible.
There can be some argument between the government and the opposition on the path to recovery. The government should try to stimulate private investment and consumption, and the Bank of England push the lenders to start making loans to businesses and households. Though Moody’s warning may not seem new to many, yield on pound denominated 10-year assets have gone up a bit and the Sterling opened lower this morning.
There will be some activity at home with the inflation numbers coming in the morning. Analysts expect CPI to fall to 3.6 pc, the lowest in the past twelve months. This is partly because the increased VAT effect will not be considered in the reading.
As the Japanese GDP shrunk by 0.6 pc, the central bank has decided to keep the Yen weak to boost exports. The Bank of Japan announced an additional 10 trillion Yen asset purchase program that will also help it fight deflation. The bank aims to nudge the year-on-year inflation to 1 pc, according to the announcement.
CURRENCY RATES OVERVIEW
GBP/EURO – 1.1951
GBP/US$ – 1.5716
GBP/CHF – 1.4443
GBP/CAN$ – 1.5741
GBP/AUS$ – 1.4716
GBP/ZAR – 12.1588
GBP/JPY – 122.54
GBP/HKD – 12.1912
GBP/NZD – 1.8939
GBP/SEK – 10.5028
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EURO: The single currency had hit an intraday high of 1.3285 against the greenback but failed to maintain the momentum despite Greece parliament passing the new austerity measures. It dipped further in the last 24 hours to 1.3130 this morning after news of sovereign downgrades by Moody’s came in. A FT report suggest today that Greece may not get the entire €130 billion bailout money as EU lawmakers remain unconvinced about Athens’ ability to stick to the austerity measures. To complicate matters further, forexlive.com reported that the PSI may be partially successful as not all bondholders agree to the terms of the proposal. The pound also strengthened against the common currency as the GBP/EUR pair opens at 1.1950 this morning. The market will stay focused on the German ZEW Economic Sentiment and Industrial Production data due today.
USD: The greenback has gained against the cable over the last 24 hours and the GBP/USD pair dropped to 1.5690 from 1.5820 yesterday. The pair opened higher at 1.5725 this morning ahead of the important inflation data today. Ratings agency Moody’s warning over an impending downgrade continues to weigh on the Sterling. The outcome of the Greek PSI deal will continue to influence price movement in the medium term.
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