Good morning and welcome to today’s foreign exchange market commentary on Thursday, the 1st of November.
Greece and Cyprus are engaged in a one-upmanship game of pushing the ‘troika’ of the EC, the ECB and the IMF to the limit without crossing the thin red line. Both the countries claim they have failed to make the troika accept its ‘demands’, giving an impression they have other options.
The Greece Democratic Left party, one of the coalition partners, announced emphatically that the troika has not accepted the DL’s demand for slower labour reforms.
Dimitris Christofias, the left leaning president of Cyprus, informed the media that the EU is bound to change the methods of addressing the present crisis, implying he has a say in the matter. The fact is the troika flew back after Nicosia’s refusal to agree to labor reforms and has shown no interest in coming back. Christofias said he expects them to be back at the earliest; the troika is yet to set a date for meeting.
Both countries know that Europe will go to almost any extent to prevent an exit and are trying to leverage the situation. Unfortunately time is not on their side as cash is unlikely to last beyond mid-November.
They are playing with fire. Whether they get extra cash is decided by the hard-nosed Germans and Finns, and not by Europe. A few desperate phone calls from Athens or Nicosia are unlikely to cut much ice with politicians in Berlin or Helsinki.
Merkel’s original plan was to wrap all the countries, Spain, Greece and Cyprus, together and present to the Bundestag for approval. But that can’t happen because Spain is yet to apply officially whereas the Hellenics need the money immediately. So Merkel may have to push for the Hellenic deals in the Bundestag now, a not-so welcome prospect for the Chancellor. The Finnish are unlikely to be pleased either.
November 12th is the D-day when the finance ministers of EZ meet in Brussels and the troika is expected to have the Greece and Cyprus deal ready by then. Let’s wait and watch.
CURRENCY RATES OVERVIEW
GBP/EURO – 1.2461
GBP/US$ – 1.6124
GBP/CHF – 1.5052
GBP/CAN$ – 1.6132
GBP/AUS$ – 1.5561
GBP/ZAR – 13.9792
GBP/JPY – 128.91
GBP/HKD – 12.4982
GBP/NZD – 1.9624
GBP/SEK – 10.7512
EUR: The single currency lost ground against the greenback yesterday despite starting strong in the morning. The euro rose in early trade after Spanish Prime Minister Rajoy said the country would need EU’s help to meet its deficit targets and on rumours that Athens is likely to receive a two-year extension following the Finance Minister’s presentation of the 2013 budget in the parliament. However, euro failed to hold its ground as economic data from Europe were mixed with unemployment rate rising to a fresh new high of 11.6 percent in October. The EUR/USD pair dropped to 1.2930 overnight from 1.3020 yesterday and is unlikely to see much movement due to lack of data from the EZ. GBP/EUR has performed well over the past 24 hours and may turn higher over speculations that the BoE is unlikely to start another round of QE when MPC members meet next week. The pair is currently testing the 1.2500 level.
USD: Sterling turned higher against the US dollar despite month-end dollar buying by traders over speculations that the BoE will refrain from further assets purchase. Also demand for the pound remained well supported vs. the euro and the GBP/USD pair hit a high of 1.6132 overnight after Chinese PMI came in better than estimated. The manufacturing index rose to 50.2 in October from 49.8 in September. We have the UK Manufacturing PMI due today followed by ISM manufacturing data and ADP Employment Change reading from the other side of Atlantic.
Have a great day!
