The Greek problems have stepped up a notch in the past 24 hours exacerbated by the pictures of riots and the announcement that Greek Prime Minister George Papandreou would tender his resignation if it would give some semblance of stability to the political situation. This was then later trumped by a statement that he would instead form a new government and seek a vote of confidence from PASOK members later in the week. It is yet unclear whether Greece is likely to receive the next portion of bailout money due if the country’s political and economic situation remains in such a state of flux.
Needless to say the euro was hit on all of its crosses with GBPEUR climbing above the 1.14 level and EURUSD moving back into the 1.41s. The dollar was the main beneficiary of safe-haven movement with GBPUSD sliding below the 1.62 level in Asian trade overnight.
Ratings agencies were also casting their hand over Europe yesterday. Moody’s moved on from putting the 3 largest French banks on review for a downgrade by doing the same for some members of the Portuguese banking system while Fitch indicated that Greece’s credit rating would move to “restricted default” in the event of another “Vienna Initiative”. This is when international lenders agreed in 2009 to boost credit to the region and the main commercial banks in turn committed to maintain exposure and roll over credit lines. It is obvious that enough in enough. This plan has received backing however from ECB Vice President Victor Constancio while ECB Board Member Wellink argued that Europe’s financial aid package may need to be doubled.
It was much quieter here in the UK yesterday with Sir Mervyn King speaking at the Mansion House overnight. The Governor of the Bank of England stated that subdued earnings growth and “remarkably” broad money growth give a strong signal that the CPI will fall back in due course. He also wanted to reassure that “it is impossible to know when tightening will begin” and that the MPC “is watching extremely carefully for any signs of a pickup in domestically-generated inflation and it will take action as soon as it is appropriate to do so”. The UK received a boost yesterday in its unemployment measures although we did see jobless claims rise for the 3rd consecutive month.
Signs of a slowdown in the US were apparent yesterday with all roads leading to stagflation. Two manufacturing and industrial production measures disappointed while inflation continued to rise with the Core CPI rising by the most in 5 years. The dollar was stronger on the day as a result of haven flows.
We have UK retail sales today and they are expected to show a decline in sales volumes in May, as part of the April boost is reversed following the string of holidays, the good weather, and the royal wedding.
Indicative Rates Sell Buy
GBPEUR 1.1430 1.1455
GBPUSD 1.6150 1.6174
EURUSD 1.4116 1.4139
GBPJPY 130.18 130.48
GBPAUD 1.5318 1.5345
GBPNZD 2.0107 2.0139
GBPCAD 1.5860 1.5888
NZDUSD 0.8025 0.8045
GBPZAR 11.05 11.10
USDZAR 6.8355 6.8682
GBPPLN 4.5159 4.5440
EURJPY 113.77 114.03
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