Royal Alliance Capital Currency Report

Greece passes austerity measures

After a week of violence in the streets of Athens, Greek MPs passed further austerity plans on Sunday night paving the way for the country to receive a second bailout of €130 billion.

The austerity measures included 15,000 public sector job cuts, minimum wage cuts of 20% and liberalisation of labour laws. Parliament also agreed to write off €100 billion of Greek debt held by private banks – another key hurdle needed for bailout funds to be released.

Further afield in the euro zone, German industrial production and exports both slumped during December. However, the European Central Bank’s decision to keep interest rates at 1% helped the euro reach intra-week highs of €1.1894 versus the pound.

In the UK, the Bank of England (BoE) increased its quantitative easing (QE) measures by £50 billion to £325 billion, whilst leaving interest rates at 0.5%. The move was less than the £75 billion some had expected and hopes the UK’s economy will avoid a renewed recession lifted sterling. December’s industrial production and international trade data exceeded forecasts.

Against the US dollar, the pound reached intra-week highs of $1.5925 as investors concentrated on comments from the Federal Reserve regarding its current monetary policy. The dollar’s weakness came as Federal Reserve

Chairman, Ben Bernanke, downplayed the importance of last week’s buoyant employment data, suggesting recent figures understate the weakness of the US labour market. However, as clashes in Greece intensified on Friday, the US dollar reversed mid-week losses versus sterling as investors sought perceived safer-havens amid current global uncertainty.

The Australian dollar’s rollercoaster week started badly with retail sales data marking their heaviest fall since records began. Losses were swiftly pared as the Reserve Bank of Australia (RBA) unexpectedly left interest rates unchanged at 4.25%, helping the Australian dollar reach historic highs of AU$1.4614 versus sterling. Some of the gains were later lost as nerves over the Greek situation caused markets to favour currencies with lower interest rates.

An unexpected drop in New Zealand’s unemployment rate confirmed a mediocre week for the New Zealand dollar, with the GBP/NZD rate finishing at NZ$1.9073. An increase in both the number of homes being constructed and building permits issued had a muted effect on the Canadian dollar, sliding over half a cent against sterling.

The South African rand bore the brunt of some heavy selling towards the latter part of last week. South Africa’s President Jacob Zuma confirmed there would be an announcement of “national importance” on Saturday. However, fears were allayed on Saturday as the announcement merely confirmed Nelson Mandela’s face will feature on all South Africa’s bank notes to honour the former President.

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One Response to Royal Alliance Capital Currency Report

  1. Pingback: Royal Alliance Capital Currency Reprot « Royal Alliance Capital

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