Good morning and welcome to today’s foreign exchange market commentary on Thursday the 17th of November.
The Eurozone is racing against time. The focus today will remain on bond markets as France and Spain taps investors for €11 billion as contagion fear spreads. AAA French got a jolt yesterday as yields on its 10-year bonds jumped to euro-era high of 2 per cent, while yield on Spanish debts also surged. It remains to be seen at what rate both the countries manage to close the deal today.
Meanwhile the new Greek government will face a public opinion test on Thursday as thousands are expected on the streets protesting anti-austerity measures. The govt. led by former European Central Bank vice-president Lucas Papademos must enforce structural reforms to secure a second bailout deal agreed last month. He held talks on Wednesday night with Charles Dallara, the managing director of Institute of International Finance, towards the first step of writing-off a large chunk of Greece’s €350 billion euro debt. Dallara is leading negotiations on rolling over Greece’s debt as part of last month’s agreed deal. The rescue plan gives Athens €100 billion in loans and €30 billion to recapitalise Greek banks while investors accept a 50 per cent write down on the country’s debts.
CURRENCY RATES OVERVIEW
GBP/EURO – 1.1676
GBP/US$ – 1.5756
GBP/CHF – 1.4475
GBP/CAN$ – 1.6088
GBP/AUS$ – 1.5612
GBP/ZAR – 12.8057
GBP/JPY – 121.1
GBP/HKD – 12.2508
GBP/NZD – 2.0528
GBP/SEK – 10.6872
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EURO: The common currency gained ground against the greenback to touch a high of 1.3550 as it transpired that the ECB is buying Italian bonds through the Securities Market Programme. However, it failed to hold its ground after ratings agency Fitch said US banks could be greatly affected if the EZ contagion spreads. Things worsened further when Moody’s, another rating agency, downgraded twelve public sector German banks stating the govt. is unlikely to bail them out if they had a run on them. The EUR/USD pair slumped to 1.3500 on the news and slipped further to 1.3423 in overnight trade. The GBP/EUR pair is hovering around the 1.1700 level.
USD: The greenback remains strong as risk aversion off the table now. The GBP/USD pair fell below the 1.5700 level as unemployment rate continued to disappoint and stands at a 15-year high of 8.3 per cent. Data from US generally remained positive with industrial production growing by 0.7 per cent last month after falling to 0.1 per cent in September. Markets will be eyeing the UK retail sales data due this morning.
Elsewhere, the antipodean currencies remained weak over the ratings agencies’ forecast. However, both the AUD and the NZD gained against the GBP over the past 24 hours and trade at 1.5620 and 2.0570 respectively. The Bank of Japan lowered growth outlook for the year causing the greenback to soften against the JPY.
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