Financial markets look more hopeful this morning as expectations rise that the Greek government will find enough volunteers to take participation in the debt swap above 75%. Although four Greek pension funds are holding out, their holdings only total €2 billion out of €206 billion outstanding. While acceptances of Greek law bonds has been around the 70% mark, we have seen a much higher level of acceptances from foreign law bond holders than we had expected. This probably reflects some level of moral suasion from European governments who have doubtlessly been pressing debt holds to „voluntarily‟ accept the Private Sector Initiative and 70% haircut.
If, as is now expected, the private sector initiative does go through then it clears the way for IMF and Eurozone funding to ensure that any Greek default is orderly.
Reports that the Fed was looking at a long-dated bond buying programme to support economic activity also boosted sentiment. The euro rallied from $1.31 to $1.3170 against the dollar as the Greek debt deal became more certain. Sterling managed to rally against both with cable rising above $1.5770 while euro-sterling fell from 1.1960 to 1.1975 as London markets opened.
Given the relative dearth of UK data it is hard to pin sterling movements on any particular event, so a fall back in GBP is very possible.
Differences of opinion between MPC members are beginning to emerge, but it is hard to believe that there will be any change in stance this month. Bank Rate is set to remain at 0.5% and asset purchases at £325 billion.
Despite calls from the IMF for a cut in rates (which would weaken EUR), the European Central Bank is expected to keep interest rates on hold.
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