Money Transfer Update: Pound Sterling Benefits from Risk Appetite Against Dollar

The markets have lurched back into ‘risk appetite’ mode after better than expected Chinese manufacturing data was published late on Tuesday evening.

The HSBC purchasing managers' index (PMI) continued to improve for a second month in a row and is now at its best single reading of the last three months.

"October's flash PMI reading continues to recover for the second month, thanks in part to a gradual improvement in the new orders index, which picked up to a six-month high. However, external challenges still abound and pressures on the job market are lingering. This calls for a continuation of policy easing in the coming months to secure a firmer growth recovery " said Qu Hongbin, chief economist for HSBC Holdings PLC's China arm.

The pound has benefited from the move towards risk appetite against the US dollar, the bastion of safe haven demand. However, the Chinese data has greatly benefited the high risk currencies like the Australian and New Zealand dollars.

In Europe, credit ratings agency Moody’s followed up its decision last week to maintain its credit rating for Spain at investment level with a downgrade of the five Spanish regions last night. The five regions, Andalucia (from 'Baa3' to 'Ba2'), Extremadura (from 'Baa3' to 'Ba1'), Castilla-La Mancha (from 'Ba2' to 'Ba3'), Catalonia (from 'Ba1' to 'Ba3'), and Murcia (from 'Ba1' to 'Ba3') were each downgraded by one or two notches and this takes each below an investment grade credit rating, heaping further upward pressure on their cost of borrowing.

Moody's explained its rating cut, citing a lack of liquidity, high debt levels and elevated uncertainty over the ability to correct fiscal imbalances for Andaluca, Castilla La Mancha, Catalonia, and Murcia. The same argument was made for Extremadura, but in this case Moody's acknowledged savings measures implemented to reduce its deficit.

On a slightly brighter note, the Spanish Treasury managed to sell in excess of its target of €3.5 billion euro’s at its latest debt auction yesterday. Although yields rose slightly for the shorter-term bills, there was at least solid demand for its debt.

In Greece, the coalition government met again yesterday to try and agree on the €13.5 billion of austerity measures that must be agreed in order for Greece to comply with the bailout’s agreed with the so called troika, that is, the International Monetary Fund (IMF); European Union (EU) and European Central Bank (ECB). Greece needs the approval of the Troika in order for it to receive the next tranche of bailout funds, totalling €31.5 billion, otherwise it risks bankruptcy by the end of next month.

Sadly, once again, Prime Minister Antonis Samaris, PASOK leader Evangelos Venizelos and Democratic Left head Fotis Kouvelis were unable to bridge the gaps.

Samaras continues to have his hands tied and simply called on his coalition partners to join him in the “broadest possible unity”.
Kouvelis made clear that he would not vote in favour of Troika demands that would “increase firings, unemployment and the recession” and commented that the international lenders seemed intent on destroying any remaining workers’ rights. Meanwhile, Venizelos also expressed his discontent, considering it “unjustified and provocative that the issue of labour reforms should be brought up now,” while insisting that such measures would not help Greece to reach its fiscal targets.

In better news, German newspaper Süddeutsche Zeitung reported that the euro zone had granted Athens two more years, that is until 2016 to bring its deficit down to the 3% required.

Whilst the news out of the euro zone is not uniformerly bad, the refocusing of attention on the long running euro zone sovereign debt crisis was sufficient to put the euro back under pressure.

Money Transfers to Canada:-

With oil prices falling due to poor international demand as the world economy continues to slow down and better than expected UK GDP data expected out tomorrow (the so called Olympics boost) the pound reached its highest level against the Canadian dollar in trading today since 2 July.

However, with winter approaching and the focus at the start of November (only days away) bringing inevitable speculation as to whether the Bank of England will follow the US example and authorise a third round of their Quantitative Easing (QE), the pound could come back under pressure at the start of November so clients with a Canadian dollar requirement may be best served by taking advantage of the rates currently available.