Week starts weak as Europe continues to creak

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Led Zeppelin’s song “The Song Remains The Same” has been bouncing round my head all weekend, in most part due to what is going on in European markets. What was a Greek story, became a Portuguese one, then Irish, Italian and finally now Spanish. Over the weekend, although new developments have been thin on the ground, everyone has been talking about the Spanish economy and the likelihood of them taking a bailout although where the money comes from in the first place remains an issue. Spanish bonds weakened on Friday following a particularly bad day for the world economy.

As we reported on Friday, Chinese GDP sank to its lowest level in 3 years on Friday causing concerns that the emerging market economies which hadn’t slowed during the western world recession of 2010 may get closer to doing so now. A survey of US consumer confidence also saw the first dip in sentiment since August of last year (when the debt ceiling negotiations were being dragged along by Congress); no recovery is safe at the moment. Global equities fell into the close with the dollar and the yen strengthening greatly as traders jumped into haven investments. Asia has continued the rot this morning.

There is the very real fear that this week could be “one of those weeks” when all hell breaks loose in markets as confidence continues to fall away from investments and in turn, raise expectations that the world’s central banks will need to add more “risk-free” money to the cauldron.

The Chinese authorities have widened the trading band of USDCNY over the weekend, now allowing the Yuan to move by up to 1% upwards or downwards on any given day. This is not seen however, as a signal to take the CNY to stronger territory but instead to simply allow more volatility into the price so as to give Chinese exporters experience before a free float eventually comes. The decision is being viewed as EUR negative as it allows the potential for further USD strength.

One bright-spot over the weekend, although completely overshadowed by developments elsewhere, was the decision by Moody’s to reaffirm the UK’s credit rating at AAA. The rating outlook also remained at stable, reflecting its “expectation that the government will continue to consolidate public finances”. Like everyone, the agency still has doubts about the growth profile of the UK economy in the coming quarters although a prominent think-tank this weekend has affirmed belief that the UK economy did not double-dip between Q1 and Q4 of last year. Sterling has not been able to completely dodge the risk averse movements of the markets this morning but these do lend GBP a stiffer backbone than the one the European single currency is in possession of.

The outlook for today’s, and the rest of the week’s, markets are fairly grim with an expectation of further losses. Time to dig out the tin hat.

Indicative Rates Sell Buy
GBPEUR 1.2087 1.2114
GBPUSD 1.5928 1.5956
EURUSD 1.3163 1.3186
GBPJPY 128.91 129.17
GBPAUD 1.5326 1.5351
GBPNZD 1.9223 1.9251
GBPCAD 1.5847 1.5876
NZDUSD 0.8277 0.8297
GBPZAR 12.58 12.63
USDZAR 7.8976 7.9337
GBPPLN 5.0377 5.0655
EURJPY 106.48 106.75

Please note these rates are “interbank” rates ie they indicate where the market is currently trading and are not indicative of the rates offered Rates are dependent on amount transacted. It is important to remember that foreign exchange rates fluctuate all the time.

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Week starts weak as Europe continues to creak

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