Good morning and welcome to today’s foreign exchange market commentary on Thursday, the 22th of March.
So the chatter on UK’s budget has subsided. Chancellor Osborne deserves a pat on the back, albeit a small one, for doing his bit to reign in still-large deficits as ratings agencies threatened to pull down UK’s triple-A rating. He cut taxes for the not so well-off and the very rich and lowered corporation taxes further, which can be called mildly positive for economic growth. Nonetheless, fiscal prudence says he must take back with other, what he has given with one hand.
The Office for Budget Responsibility did revise its growth forecast to 0.8 percent from the current 0.7 percentage points, but the little change largely went unnoticed and failed to cheer markets. There is a widespread belief that he could have done a little more to encourage investment. Fuel duties could have been cut; National Insurance contributions for SMEs could have been reduced thus inducing investments and not just set up headquarters. The challenge however, remains humongous as he still needs to defend 6 percent deficit in 2012-13 against the backdrop of a slow-growing economy.
Meanwhile the minutes of the latest MPC meeting generated more heat than Osborne’s speech, with two of the most dovish members, Adam Posen and David Miles, voting for another round of £25 billion in asset purchases. Apparently, the battle between the hawks (opposing another round of QE) and doves will continue well into 2012.
CURRENCY RATES OVERVIEW
GBP/EURO – 1.2001
GBP/US$ – 1.5884
GBP/CHF – 1.4465
GBP/CAN$ – 1.5768
GBP/AUS$ – 1.5274
GBP/ZAR – 12.175
GBP/JPY – 132.30
GBP/HKD – 12.3375
GBP/NZD – 1.9632
GBP/SEK – 10.665
EUR: The single currency remained range-bound for most of Wednesday against its global peers except occasional selloffs on Italian and Spanish debt woes. Focus remained on Spain after an well known analyst said Madrid remained vulnerable than ever before ahead of its debt restructuring. However, Portugal came out tops with solid demand for their securities. The GBP/EUR pair rallied to 1. 1946 after UK government borrowing number came in lower than expected, but dropped to 1.2016 after a heavy sell-off taking a cue from the EUR/USD pair. The euro opened lower this morning as German and French PMI numbers came in lower than expected. The GBP/EUR pair opens at 1.2025 this morning.
USD: The greenback made little gains against most of its global peers as US housing data failed to cheer and Chinese growth showed signs of slowing down. There’s not much news from the markets except UK Feb. retail sales number which is expected to drop by 0.5 percent after a surprise 0.9 percent growth last month. The Pound may come under pressure against the dollar if retail sales data shows decline today. The GBP/USD pair opens at 1.5815 this morning.
Have a great day!
