Good morning and welcome to today’s foreign exchange daily market commentary on Wednesday the 16th of November.
Is the European Union staring at contagion? Well, things are certainly not looking good for the eurozone. Yields on Italy’s 10-year duration bonds breached the 7 per cent barrier again on Tuesday; a key level that many believe is unsustainable for the country while borrowing cost for Spain rose ahead of its debt auction of a new 10-year bond on Thursday.
The spread on French, Belgian and Austrian 10-year bond yields over German Bunds widened to their highest since Euro came into existence in 1999. Don’t be surprised if France suffers a downgrade in near future. Dutch equivalent maturity yield-spread also hit its highest since early 2009.
Meanwhile a ZEW survey showed German investor and analyst sentiments sank for the ninth straight month in November. Political and economic uncertainty in Italy and Greece was cited the reason for the overall gloom.
UK inflation data was something to cheer about after October recorded a 0.2% drop over the previous month. However, Governor Mervyn King will be worried still since it remains way above the targeted annualized rate of 2%. Unemployment data is expected today and not much improvement over the previous month is expected.
CURRENCY RATES OVERVIEW
GBP/EURO – 1.1684
GBP/US$ – 1.5786
GBP/CHF – 1.4496
GBP/CAN$ – 1.6178
GBP/AUS$ – 1.5614
GBP/ZAR – 12.8831
GBP/JPY – 121.50
GBP/HKD – 12.2917
GBP/NZD – 2.0516
GBP/SEK – 10.6732
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EURO: The common currency continues its downward journey against major global currencies amid widespread apprehension of a looming EZ recession. To make matters worse, the GDP in euro area grew by a negligible 0.2 per cent in Q3, although it was along expectations. Fortunately US data looked better than expected as retail sales in October rose by 0.5 per cent against the projected 0.25 per cent. The EUR/USD pair opened lower at 1.3520 today morning and is expected to be range bound today. The GBP/EUR remained fairly steady yesterday and hovered around the 1.1700 level.
USD: The Cable saw some volatility as investor risk sentiments were more influenced by EU developments. The GBP/USD pair fell below the 1.5800 level in overnight trading and opened at 1.5790 in the morning trade.
Elsewhere, the commodity backed currencies gained against the Sterling yesterday despite heighted risk aversion. This possibly explains the Sterling’s strong link to the EZ while the antipodean currencies remain tied to the Chinese growth story.
Have a great day.
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