Good morning and welcome to today’s foreign exchange market commentary on Tuesday, the 20th of November.
The global equity rally seems to lose steam as growth prospects in the advanced or the emerging economies remain weak. The correction in fact could have come earlier given the wave of disappointing macroeconomic data in recent months. The slowdown in the European peripheries is now spreading to the core with Germany witnessing a slowdown of exports in key Asian markets while France has officially entered recession. Japan, like Europe, is on the verge of a double-dip recession while strong commodity exporters like Canada and Australia are slowing due to headwinds from the US, Europe and China. The UK has already survived a double-dip recession.
As emerging markets struggle to counter weak demand from advanced economies, China’s recent stability may not last beyond a few quarters. The government’s latest monetary and fiscal stimulus is likely to perpetuate its unsustainable growth model that focuses too much on savings and fixed investments and virtually ignores private consumption.
In 2013, the spread of fiscal austerity in most advanced economies will create further headwinds. In the US, the economy is likely to trim at least 1 percent even if President Obama and the Republicans strike a deal on the so-called fiscal cliff. In Japan, a new consumption tax will kick in 2014 while the post-tsunami reconstruction will fade out. The IMF’s forecast that excessive coordinated austerity will drag down global growth in 2013 is prophetic in this regard.
Also the eurozone crisis remains unresolved. Despite talks of banking, political, economic and fiscal union, Greece, Portugal, Spain and Italy still remain in risk. Also regional conflicts such as territorial disputes in the South China Sea, a possible Iran-Israel conflict and escalation of Hamas-Israel conflict adds to the overall downside risk.
CURRENCY RATES OVERVIEW
GBP/EURO – 1.2429
GBP/US$ – 1.5904
GBP/CHF – 1.4972
GBP/CAN$ – 1.5854
GBP/AUS$ – 1.5286
GBP/ZAR – 14.0651
GBP/JPY – 129.06
GBP/HKD – 12.3268
GBP/NZD – 1.9438
GBP/SEK – 10.7122
EUR: The euro jumped to a two-week high yesterday on hopes that Eurozone finance ministers would give the go-ahead for the next tranche of bailout money to Greece. The EUR/USD pair hit a high of 1.2820, but dropped to 1.2770 after Moody’s cut France’s rating one notch to Aa1 from triple-A late last night, citing rigid labour, service and goods markets and its sustained loss of competitiveness. It has firmed up since ahead of the euro-group meeting today while markets remain optimistic that an agreement over Greece debt restructuring between EZ finance ministers and the IMF would be finalised today. The euro has remained steady against the pound over the past 24 hours and the GBP/EUR opens at 1.2430 this morning.
USD: The greenback weakened against its peers yesterday as risk sentiments got a boost following better than expected existing home sales and talks of a compromise on the so-called fiscal cliff between the Democrats and the Republicans. The cable however remained range-bound against the US dollar, trading in the 1.5890 and 1.5920 range, due to lack of any tier-1 data from the UK. Today we have the new building permits for October and markets would expect a repeat of yesterday’s feat. The GBP/USD pair opens at 1.5927 today morning as markets await some announcement over Greece.
Have a great day!
