Good morning and welcome to today’s foreign exchange market commentary on Wednesday, the 28th of March.
Yesterday global markets shrugged off the feel good factor introduced barely 48 hours ago by Fed Chairman Ben Bernanke by hinting at additional asset purchases as European debt continues to worry investors. The yield of Spanish and Italian debts surged yesterday over worries of new austerity hitting the peripheral country’s growth. There is a growing realisation that combining the EFSF and the ESM may not be sufficient if Spain and Italy falls into further trouble. The fund is left with about €720 billion. An amount of €150 billion can be set aside for Greece and Portugal’s bailout. Italy alone would require €750 billion to finance its debts over the next three years. Spain would require an additional €370 billion during the same period. A safety net of at least €1 trillion, as suggested by the 34-member OECD on Tuesday, suddenly seems inadequate for the regions debt woes.
Meanwhile, Italian Prime Minister Mario Monti, currently on a visit to Japan, blamed the EU’s two largest economy Germany and Italy, for the current debt crisis. The widely respected economist said Germany and France was loose concerning public deficits and debts when the euro was at its infancy in 2003. He said despite recommendations, a group of ministers from the union decided not to punish the region’s two biggest economies for breaching the three percent debt-GDP ratio. In a way it set a bad precedent that came to haunt other economies this time around, he observed. The forthcoming meeting of Eurozone Finance Ministers on Friday and Saturday will be worth watching as they meet to discus increasing the region’s debt rescue mechanism.
CURRENCY RATES OVERVIEW
GBP/EURO – 1.1949
GBP/US$ – 1.5950
GBP/CHF – 1.4424
GBP/CAN$ – 1.5880
GBP/AUS$ – 1.5295
GBP/ZAR – 12.156
GBP/JPY – 131.86
GBP/HKD – 12.3728
GBP/NZD – 1.9468
GBP/SEK – 10.639
EUR: The single currency hit 1.3386 against the greenback in early trading on Tuesday, its highest level in a month as strong demand for Italian debt bolstered the euro. Economic data from the region was mixed with French Consumer Confidence coming in at 87 compared to 82 in the prior month while German Gfk Consumer Sentiment dropped after six consecutive months of expansion. However, weaker S&P Case Schiller House Price Index, Richmond Fed Manufacturing Index and the Conference Board Consumer Confidence numbers drove the euro down as the greenback clawed back some early losses. German CPI numbers are expected today and will decide the single currency’s movement. The GBP/EUR pair opens at 1.1923 this morning.
USD: The greenback gained yesterday against most of its peers after data released showed US house price declines slowed in March. The GBP/USD pair gained as the March CBI distributive sales numbers came in slightly better than expected. Today’s price is likely be influenced by the first estimate of Q4 GDP numbers, due in the morning. The GBP/USD pair opens at 1.5930 this morning.
