After seeing the Euro drop off against the USD in yesterdays trading due to concerns about the Greek situation and Sterling rallying higher we’ve seen Euro strength overnight and it has continued at the European opening. This morning we’ve had IFO data out in Germany, released by the CESifo group comprising of Current assessment/expectations and business climate.
These figures came in at 123.3, 106.3 and 114.5 with expectations at consensus and assessment and business climate coming in above consensus. The Euro has been further buoyed by the announcement from the ongoing Economic Finance Ministers meeting in Brussels with EU leaders vowing not to allow Greece to default as long as the Prime Minister of Greece, George Papandreou, follows through with a package of budget cuts next week.
It’s all give and take, an injection of funds for the promise from Greece of 78 billion Euros of austerity measures being implemented. The measures have been given the green light by the IMF, European Central Bank and the European Commission. Lawmakers will vote on the package of cuts on June 30th, which comes just before the next meeting of EU finance ministers on July 3rd where they’ll agree to pay the next instalment.
It seems what’s been on the cards for a number of weeks now will play out. Greece will get the next instalment, they’ll have an agreement in place to reduce their budget deficit, the EU and the powers that be will dress up a “default” as not a “default” through some clever use of language and by having a “rollover” of existing Greek debt at maturity on a voluntary basis and for banks, insurance companies and asset managers to hold onto their Greek bonds instead of selling them off.
This will see Greece through for the time being however as I’ve said many times, the fundamental economics of Greece don’t stand up. How are they to achieve economic growth? With the spending cuts, selling of Government assets, increases in taxes as has been quoted before “it’s the perfect toxic cocktail for zero growth”. We may see further Euro strength over the coming days with more ‘positive’ announcements likely to be released.
The Bank of England’s Governer, Mervyn King, was speaking this morning and of late that has been bad news for Sterling. However, I think the upside on the Sterling move yesterday and the retracement this morning has been priced in by the market so there hasn’t been much of move either way on his comments.
Out of the US this afternoon we have Gross Domestic Product Annualised (Q1) and also Durable Goods orders. The main volatility on dollar crosses will of course come after the release of the GDP figure. The US Dollar has been performing well in the last couple of sessions, with some retracements intermixed, so a better than expected figure will give the dollar another uptick which may in turn push the GBP/USD pair lower. If you’re a seller of dollars I’d think about capitalising on the downward move of the pair in recent days as we haven’t seen these levels for a while.
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