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Euro poised to sink or swim

Euro poised to sink or swim

Yesterday saw GBP spike against EUR at a new seven year high. This was off the back of Bank of England minutes showing a 9-0 vote in favour of unchanged policy (there was expectation for 1 or 2 votes for potential cuts given the recent inflation figures). This, of course, was set in the context of the Greek debt crisis, with the ever articulate Greek leaders seizing every opportunity to make their, fairly unclear position, clear.

This morning the markets are awash with rumours, which may become news, that the Greeks will request a new six month loan extension today. Whilst this is considered positive for market stability, it is the exact content and terms of the agreement that matter.

The ECB have again increased the amount of emergency liquidity loaned to Greek banks by EUR 3.3bn to over EUR 68bn. This figure has been calculated to cover Greek banks’ liquidity needs for another week, assuming withdrawals continue at current pace. If Greece cannot agree to an extension of the aid programme in the next few days, it will likely be shut down by 5th March. This would likely trigger capital controls and domestic payment restrictions for Greek banks and so the proverbial rabbit hole would open.

In the US the recent FOMC minutes revealed the members are more dovish (leaning away from interest rate rises) than expected. “Many participants” noted that the balance of risks had “inclined them toward keeping the federal funds rate” near zero “for a longer time”. As such we have seen the USD depreciate to 1.5450 against GBP.

Elsewhere AUD, NZD, CAD and ZAR are all looking like great buys with GBP. The commodities based currencies seem to be struggling with rumours a slowdown in the behemoth Chinese economy.

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