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Good morning. The European single currency tumbled this morning following a double whammy. Firstly, ratings agency Standard and Poor’s decided to cut Italy’s credit rating from A+ to A, citing slower than expected economic growth and poor debt management. To add insult to injury, Bank of China stopped trading forex swaps and forwards with some European banks including French lenders BNP Paribas, Societe Generale and Credit Agricole. Lambasting Italy’s ruling political coalition, the ratings agency said: “Italy’s fragile governing coalition and policy differences within parliament will continue to limit the government’s ability to respond decisively to domestic and external macroeconomic challenges.” One can only hope Prime Minister Silvio Berlusconi takes time out from his ‘‘extra-curricular activites’’ and focuses more on the country’s spiraling debt. Old habits however, die hard!
Sterling was subdued against the USD yesterday as possibilities for a third round of Quantitative Easing is getting stronger. The Monetary Policy Minutes of the Bank of England is expected to be out on Wednesday. The GBP/USD pair started at 1.5740, but had hit 1.5633 – the lowest since January this year, as banks sold the Cable heavily. The greenback was preferred as investors ran for safety over the impending Greek default. Sterling dropped to two-and-a-half-years low on Monday against the Japanese Yen. The Federal Reserves starts its two days September meeting on the other side of the Atlantic today.
CURRENCY RATE OVERVIEW
GBP/ EURO – 1.1502
GBP/ US$ – 1.5680
GBP/ CHF – 1.3874
GBP/ CAN$ – 1.5557
GBP/ AUS$ – 1.5361
GBP/ ZAR – 12.1088
GBP/ JPY – 119.93
GBP/ HKD – 12.2245
GBP/ NZD – 1.9142
GBP/ SEK – 10.5282
EURO: There is a greater consensus now that Greece will not be able to meet the preconditions for further bailout money. The situation got further complicated yesterday as news spread that Athens was contemplating referendum over the Euro and its future continuance in the EU. However, deputy government spokesman Angelos Tolkas scotched reports of Greece leaving the eurozone. EUR/USD pair had fallen to an intraday low of 1.3586 yesterday before rallying to 1.3721 over reports of the ECB/IMF/EU Troika-Greece nearing a deal in the coming days, though there were no confirmations from the Troika. IMF’s Greek representative Bob Traa refused to comment if Greece will receive the sixth tranche. “That’s what we are working on … We are making progress but it would not be correct for me to speculate on this … I don’t have a crystal ball but we are working 24/7 to get it done,” said Traa.
USD: The USD was stronger against the Swiss Franc as Greek default looks imminent. The Swiss authority’s recent intervention to weaken the currency against the Euro has driven more investors towards the USD as a safer option. Elsewhere, the Aussie and the New Zealand dollars fell against the greenback yesterday.
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