Foreign Exchange Report : AUD NZD and ZAR Strengthen as Appetite for Risk Returns, While GBP Comes Under Pressure as MPC Member Broadbent Hints at Further QE

27 Sep 2011 at 9 AM - Written by John Cameron

STORY LINK Foreign Exchange Report : AUD NZD and ZAR Strengthen as Appetite for Risk Returns, While GBP Comes Under Pressure as MPC Member Broadbent Hints at Further QE

The Pound Euro exchange rate (GBP EUR) is 1.1500. The Pound Dollar exchange rate (GBP USD) is 1.5537. The Pound Australian Dollar exchange rate (GBP AUD) is 1.5724.

Global stock markets have bounced back in the last 24 hours as investors begin to regain their appetite for high-yielding assets following last week’s dramatic scaling back of risk.

The pick up in risk sentiment has been caused by news emanating from Washington yesterday regarding the IMF’s proposed plan to deal with Europe’s sovereign debt crisis. Although rumours suggest that the plan will involve Greece writing down 50% of its debts, causing the potential spread of contagion to European and worldwide retail banks who are exposed, investors have concentrated on the positive aspect of the proposed plan, which will see the European Central Bank’s bail-out fund ramped up to €2tn, thanks in part to matched funding from the IMF.

There was further positive news for the Eurozone overnight with comments from Japanese Finance minister, Jun Azumi, suggesting that Japan would consider ‘sharing some of the burden’ of any proposed bail-out for Greece.

UK and European share indices enjoyed healthy gains on the day yesterday, with London’s FTSE 100 closing up by 2.00%. European markets registered similar gains, while the benchmark broad-ranging S&P 500 ended the session up by 2.33%.

The equities rally continued into last night’s Asian session, with Hong Kong’s Hang Seng currently trading up by almost 3.5%, as investors take heart from the global nature of the response to the Eurozone debt crisis.

The increase in appetite for risk has seen the price of a barrel of crude rise since the start of this week’s session, whilst in the currency markets, the high-yielders have made a comeback, with GBP AUD, GBP NZD and GBP ZAR all pulling back from their near-term highs overnight.

There is potential for further downside for the Pound today thanks to comments from the Bank of England Monetary Policy Committee’s newest member, Ben Broadbent, who stated yesterday that he had seriously considered voting for an increase to the Bank’s Quantitative Easing programme at the last meeting.

Meanwhile, more bad news is emerging regarding the UK’s real economy, with reports suggesting that defence contractor BAE is set to announce the loss of 3,000 UK-based jobs later today.


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