Good morning and welcome to today’s foreign exchange market commentary on Thursday day the 26th of January.
Well, the double-dip fears are no longer looking far-fetched and another quarter of bad growth, and UK will be technically in recession. The latest underdogs that dragged down the GDP are the manufacturing and the industrial sectors. The services sector stayed flat while manufacturing output shrunk by 0.9 pc. Of course this can prove to be a blip as upgrades in the coming month can be better. But till that happens, the immediate casualty will be consumer confidence and higher unemployment rate.
Meanwhile the MPC minutes show that the BoE isn’t too optimistic either though there has been some positivity in the past month. Chances of another round of quantitative easing looks imminent provided headline inflation remains in the 4-4.2 pc range. One good development yesterday was Ireland managing to raise €3.5 billion in longer term debts to refinance its maturing obligations for the first-time since mid 2010. This probably indicates the market’s confidence in the country’s reforms and tighter fiscal policies.
German Chancellor Angela Merkel came under fire from IMF Chief Christine Lagarde though the Chancellor defended the German stand stating problems built over many years can’t be undone at one fell swoop. She warned even Germany is now at risk since it’s debt to GDP ratio has reached a staggering 82 pc. She dismissed talks of doubling or tripling the EU rescue funds as senseless chatter. Ms Lagarde reiterated that there should be public sector participation for Greek debt relief if the private sector initiative proves inadequate. However, leading German Christian Democrat Michael Meister scoffed at the idea of the ECB intervening to buy Greek debt and termed the proposal scandalous.
CURRENCY RATES OVERVIEW
GBP/EURO – 1.1951
GBP/US$ – 1.5641
GBP/CHF – 1.4431
GBP/CAN$ – 1.5691
GBP/AUS$ – 1.4722
GBP/ZAR – 12.384
GBP/JPY – 121.56
GBP/HKD – 12.156
GBP/NZD – 1.9088
GBP/SEK – 10.5642
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EURO: The common currency gained against the greenback yesterday after the Fed announced that interest rates are unlikely to rise till 2014, triggering a sell-off. Positive business sentiments from Germany also helped the single currency against its peers. Sterling weakened against the single currency after news of UK GDP contraction hit the market. The GBP/EUR opens at 1.1941 this morning.
USD: The greenback shed some of its recent gains against the Pound yesterday after Fed’s interest rate announcement indicating no hike till 2014. The Sterling remained flat in the morning as news of the UK economy shrinking by -0.2 pc came in. The cable held its ground despite growing chatter of a QE in February. However, the Pound strengthened following the Fed’s interest rate announcement and stayed touched the 1.5600 mark. Sterling opens stronger this morning and the GBP/USD is trading at about 1.5682.
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Have a great weekend!
