Good morning and welcome to today’s foreign exchange market commentary on Tuesday the 19th of January.
The European Financial Stability Facility – the EU region’s bailout fund looks woefully inadequate now. After a meeting of its 24-member executive committee, IMF chief Christine Lagarde announced that the lender will seek to raise $600 billion in new resources to help countries fight the eurozone debt crisis. To some analysts, this seems a plea to the emerging BRIC economies for higher contribution. The IMF has $387 billion at its disposal with a pledge for an additional $200 billion. It’s unlikely that the US congress will make more loans available to the IMF in an election year when unemployment rate is still high.
Canada and the US, in fact said yesterday that it expects Europe to contribute more money to resolve the debt crisis, raising doubts over the outcome of the scheduled G-20 meet in Mexico this week. Japan and South Korea also wants bigger contribution from Europe while China may dictate pre-conditions such as more voting power for emerging nations and stabilization of capital inflows and exchange rates through a change of IMF policy before committing more money. In short, Ms Lagarde’s plans may run into trouble sooner than anticipated.
Meanwhile, Greece will meet its private creditors today for the second time on a crucial bond swap deal bargain. A official Greek communiqué hoped that a solution will be reached today between Prime Minister Lucas Papademos and Charles Dallara – the representative of private bond holders and head of International Institute of Finance. If no deal is reached in the next few days, Greece’s next tranche of aid will be stuck and the country will near certainly default on the €14.5 billion of bond redemptions fall due in March.
Back at home, UK’s unemployment rate remains stubbornly high as the latest ILO reading shows it has climbed to a 16-year high of 8.4 pc compared to 8.1 pc through August.
CURRENCY RATES OVERVIEW
GBP/EURO – 1.2001
GBP/US$ – 1.5416
GBP/CHF – 1.4502
GBP/CAN$ – 1.5598
GBP/AUS$ – 1.4864
GBP/ZAR – 12.3176
GBP/JPY – 118.41
GBP/HKD – 11.9755
GBP/NZD – 1.9270
GBP/SEK – 10.5671
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EUR: Hopes of an early Greek PSI deal and talk of a bigger lending fund from IMF helped the common currency yesterday as risk sentiments improved. Though the outcome of both the events remains uncertain, EUR/USD breached the 1.2800 mark on short covering. The cable remained range-bound against the single currency, trading in the 1.1970-1.2020 band. Focus today will remain on the longer term French and Spanish debt auction though the outcome of Greek debt swap negotiations matter the most. The GBP/EUR pair opens at 1.1997 today morning.
USD: The greenback was on the back-foot against major global currencies yesterday as risk sentiments improved over Christine Lagarde’s announcement. Surprisingly, the Sterling gained against the USD yesterday despite unemployment figures hitting a 16-year old high. Today is a busy day on the other side of the pond as US jobs, housing and CPI data are released later in the day. The GBP/USD pair opens at 1.5423 this morning.
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Have a great day!
