Good morning and welcome to today’s foreign exchange market commentary on Thursday the 24th of November.
The eurozone dilemma drags on, as Germany decided to dig in its heels. As William Shakespeare had famously written “To be or not to be, that’s the question” seems Angela Markel’s predicament now. Germany’s 10-year notes remained unsold in its latest round of debt auction and Europe’s largest economy managed to sell just 60 per cent of the debts on offer. Some analysts’ said this is a clear sign that the market no longer considers Europe’s strongest economy as infallible and expects more than the 2 per cent yield offered by Bundesbank. The yield on German bund rose to 2.206 on Thursday, while the yield on Italy and Spanish bonds declined.
The pertinent question to ask is if Germany is unable to raise cheap money, what chance the much-talked about ‘Eurobond’ stands, since it will be underwritten by all the 17 member states, including the peripheral ones? Of course the spread between Germany’s borrowing rate and say Italy’s is wide and there’s enough room for experimentation. But if Germany fails to get access to cheap funds, it will be difficult for it to support a bigger EFSF facility, though that front has remained quite for some time now, probably because Italy’s debt of €1.9 trillion is too big even for a stronger EFSF. That leaves us with the option of changing the ECB’s mandate and let it become the lender of last resort, like the Bank of England and the Federal Reserve.
As European Commission President Jose Barroso makes the formal proposal for a common borrowing mechanism through the Eurobond, the proposed reforms of monitoring national budgets by the European Commission should be enacted sooner than later. That will go a long way in restoring investor confidence in the EU.
CURRENCY RATES OVERVIEW
GBP/EURO – 1.1602
GBP/US$ – 1.5556
GBP/CHF – 1.4254
GBP/CAN$ – 1.6251
GBP/AUS$ – 1.5940
GBP/ZAR – 13.1824
GBP/JPY – 119.92
GBP/HKD – 12.1131
GBP/NZD – 2.0870
GBP/SEK – 10.7151
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Euro: The common currency weakened against the greenback over Germany’s partially successful debt auction yesterday and the EUR/USD pair slipped to 1.3320. European Industrial Orders data came below expectations, compounding the euro’s woes further. The GBP/EUR pair also gained and closed at 1.1600 yesterday. The pair opens at 1.1610 this morning.
USD: Sterling fell against the greenback as negative risk sentiment grew stronger. The GBP/USD pair looks vulnerable and get hammed today if the GDP data comes below expectations. The pair opened at 1.5530 this morning and may witness some volatility today.
Elsewhere, the antipodean currencies continue to sink against the greenback. New Zealand’s trade balance data improved to -$282 million from -$452 million, though it failed to support the NZD much.
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Have a great day!
