By John Cameron on May 15th, 2012.
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Last week’s comments from South African Reserve Bank Governor Gill Marcus, stating that there is ‘limited, if any, room’ for domestic interest rate cuts in the short-to-medium term due to persistently high levels of South African inflation, have reaffirmed the Rand’s position as one of the most risk-sensitive currencies in the global economy.

Foreign Currency Market Update – GBP / ZAR Update

The GBP ZAR exchange rate has surged during the past week, making gains in six consecutive sessions leading up to today. This forward move saw the pair break to a new five and a half month high of 13.2237 during late trading yesterday. The gains were largely driven by a move out of riskier, more rewarding asset classes including the Rand, by institutional investors, due to fears over a potentially chaotic debt default by Greece. With it looking increasingly unlikely that a coalition government will be formed ahead of this Thursday’s deadline following the recent indecisive general election in the troubled Hellenic state, a fresh election next month now appears a running certainty. Yesterday’s announcement by the ‘Democratic Left’ party that it would only form a coalition which contained the hardline anti-bailout Syriza bloc appears to make an anti-bailout government more likely than ever. If this scenario transpired following a second election in less than two months, then a Greek default would become highly probable, causing the spread of damaging bad debt contagion throughout the global financial system. This would cause further severe downside pressure on the South African currency.

Meanwhile in the UK, last Thursday’s Bank of England monetary policy announcement proved supportive for the Pound, as the nine-man committee opted to maintain the Bank’s Quantitative Easing programme at its current level of £325bn. The broad Sterling gains which followed suggested that a significant percentage of analysts had anticipated that committee members would vote for an increase to the programme.

Last week’s comments from South African Reserve Bank Governor Gill Marcus, stating that there is ‘limited, if any, room’ for domestic interest rate cuts in the short-to-medium term due to persistently high levels of South African inflation, have reaffirmed the Rand’s position as one of the most risk-sensitive currencies in the global economy. This means that further bad news from the eurozone could see GBP ZAR break through last November’s multi-year high of 13.3578 in the near-term. Equally, a rapid resolution to Greece’s problems, leading to an increase in appetite for risk amongst institutional investors, could see the Rand rapidly reverse its losses of the past two months to make a renewed run at mid-March’s key interim floor of 11.7624.

Heads Up

Summary of major upcoming data releases that we think may move the market.

Related posts:

1. The South African Rand has been battered in the markets over the past four weeks
2. The South African Rand began last week’s session in go-ahead mood
3. Sterling spent the early part of last week firmly in the ascendency against the South African Rand
4. Last week saw indecision grip the GBP ZAR market
5. Pound Sterling to South African Rand Foreign Currency Exchange Rate Forecast – Rand up on Record Gold Prices

Tags: Currency Forecast, Currency News, Pound, South African Rand
Category GBP-ZAR Update

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The US Dollar and Japanese Yen pushed significantly higher overnight as equity markets witnessed a major sell off, boosting demand for the go-to safe haven currencies.

Sterling / Euro and US Dollar exchange rates

Sterling is currently holding above 1.2500 on interbank against the Euro, however has deteriorated rapidly against the US Dollar during trading this morning, reaching a low of 1.5889.

GDP data released yesterday morning, which confirmed that economic growth in Germany accelerated, had a brief impact on the rate. The Euro initially strengthened on the back of the news that the Euro-Zone had avoided a recession, however any gains were short-lived as market focus quickly reverted the political situation in Greece.

Greece is heading for a second round of elections after talks to form a coalition broke down. The situation has sent stocks across Europe lower, pushed up bond yields and raised concern the nation may leave the Euro region.

Data from the Euro-Zone this morning confirmed that European inflation slowed last month and exports dropped, further signs that the current fiscal crisis is continuing to undermine the economy and consumer demand.

During the Bank of England inflation report released this morning, Mervyn King, Governor of the Bank of England has warned that the UK would not be unscathed by the situation in the Euro-Zone.

Growth forecasts for the UK have been reduced for this year from 1.2% to 0.8%

King confirmed in a statement that the storm brewing within the Euro-Zone is still the main threat to the UK recovery:
“We have been through a big global financial crisis, the biggest downturn in world output since the 1930s, the biggest banking crisis in this country’s history, the biggest fiscal deficit in our peacetime history, and our biggest trading partner, the euro area, is tearing itself apart without any obvious solution. The idea that we could reasonably hope to sail serenely through this with growth close to the long-run average and inflation at 2% strikes me as wholly unrealistic,”

He went on to say that we’re facing a prolonged period of “sluggish” growth which will affect the U.K, however mentioned that the Bank of England has the option to respond if needed. He suggested that officials have prepared for dangers posed by Europe’s debt crisis, after the bank raised predictions for inflation this year and lowered growth forecasts

Policy makers voted to halt any further stimulus for the UK economy during last week’s Bank of England policy meeting after a number of MPC members stepped up their rhetoric on inflation, which has been above their target for more than two years. King confirmed today that the asset purchases made between October and last month will continue to stimulate the economy for some time to come – but also mentioned that there’s a case both to expand bond purchases or to hold fewer securities and that the risks to inflation in two years are “broadly, evenly balanced.”

Euro / US Dollar

The US Dollar and Japanese Yen pushed significantly higher overnight as equity markets witnessed a major sell off, boosting demand for the go-to safe haven currencies. The US Dollar broke through the $1.2700 level reaching towards 4-month highs of 1.2680.

The MSCI Asia Pacific regional benchmark equity index dropped over 2.5% as the ongoing political uncertainties in Greece spurred the country’s policy makers to call for new elections, which traders and analysts fear may produce a ruling majority for anti-austerity parties. The problem with this is the EU and IMF may renegade on its current obligations to support Greece with its current austerity leaving Greece with no option but to exit the Euro zone and possibly the EU as a whole. Stock market activity this afternoon is likely to point to further losses and further USD gains are likely as market sentiment turns negative.

Related posts:

1. Daily Foreign Currency Exchange Rate News – Sterling seems to be holding above interbank support
2. Sterling Euro US Dollar Foreign Currency Forecast – The Pound briefly traded up towards 1.1400 on interbank against the Euro
3. The Pound is holding strong against the Euro exchange rate
4. Pound Sterling to US Dollar Foreign Currency Exchange Rate Forecast – Sterling in a holding pattern as Dollar finds support
5. The Pound weakened significantly against the majors, falling back towards 1.1805 interbank

Tags: Currency Forecast, Currency News, Euro, Pound, Sterling, US Dollar
Category Daily Insight

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By Adam Solomon on May 15th, 2012.
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The Euro also rebounded from a four month low against the Dollar following the growth figures.

Sterling / Euro and US Dollar exchange rates

The Pound weakened from the highest level since November 2008 against the Euro this morning, while the single currency also made fleeting gains versus a number of currencies, after data showed that economic growth in Germany accelerated and helped the Euro-zone avoid a recession.

The much better-than-expected GDP numbers in Europe’s largest economy have rekindled risk appetite, reducing the appeal of the U.S Dollar as a safe haven. The improvement in the economic outlook in Europe also reduced the demand for Sterling as an alternative to the Euro. The Pound traded back through 1.25 this morning, as a separate report showed the UK trade deficit narrowed by less than forecast.

The Euro also rebounded from a four month low against the Dollar following the growth figures and continued to make gains, after the Luxembourg Prime Minister Jean-Claude Juncker signaled that Greece may be granted more time to meet the budget reduction targets, as long as the country forms a government that is committed to austerity. The improvement in risk sentiment saw the Australian Dollar rise for a near five month low, with technical indicators suggesting the Aussie has fallen too far and is due a correction.

Related posts:

1. The Pound rallied to the strongest level against the Euro since November 2008
2. Foreign Exchange News Flash – The Pound has weakened a further 1% against the U.S Dollar today
3. The Pound briefly trades above $1.6000 against the Dollar, recording the highest level since November 5th
4. Pound Sterling, the Euro and US Dollar exchange rate news flash – The Pound weakened back towards 1.5950 against the U.S Dollar this morning
5. Foreign Exchange News Flash – Sterling plummets to lowest level since May 2009

Category Daily Insight, news

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