Good morning and welcome to today’s foreign exchange market commentary on Wednesday, the 8th of February.
Talking about the Greece PSI negotiations may sound silly since the deadlock continues. The ruling coalition government is dragging its feet over further spending cuts while EU members are clearly losing patience. European Commissioner Neelie Kroes conveyed a tough message yesterday when she said the eurozone will survive if Athens decides to quit.
“They always said if a country is let go or asks to get out, then the whole edifice will collapse. But that is simply not true,” she said in an interview to Dutch newspaper Volkskrant, adding the scenario has been already discussed. Meanwhile Greek Prime Minister Lucas Papademos is said to be preparing a report on the effect of a default and eventual exit from the EU on the country’s economy. Papademos is scheduled to start discussions with the ruling coalition partners today morning after negotiations dragged on most of the night with Athens’ IMF and EU lenders.
Unions in Greece called for a 24-hour strike yesterday opposing further cuts. The government has already accepted €3bn cuts in local governments, healthcare and defence over the next two years. It’s also open to a 20 pc wage cut and 15,000 public sector job losses. However, there’s disagreement over further €1.2 billion spending cuts.
EC President Jose Manuel Barroso tried to calm nerves down saying “we want Greece in the euro,” and there’s unanimity among EU leaders on that issue. Obviously either Neelie Kroes or Barroso is telling the truth. We leave it to the readers to decide!
CURRENCY RATES OVERVIEW
GBP/EURO – 1.1982
GBP/US$ – 1.5911
GBP/CHF – 1.4524
GBP/CAN$ – 1.5818
GBP/AUS$ – 1.4686
GBP/ZAR – 11.984
GBP/JPY – 122.69
GBP/HKD – 12.3455
GBP/NZD – 1.8991
GBP/SEK – 10.5985
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EURO: Investors have grown a little optimistic over a Greek bailout plan soon pushing the single currency higher against the Sterling and the greenback. The euro however, weakened a little this morning over news of Germany proposing to suspend majority of aid to Greece. However, there is expectation in general that the Greece parliament will approve austerity measures by the end of day today. The euro opens lower this morning at 1.1985 after yesterday’s optimism.
USD: The greenback lost ground against the Sterling yesterday despite a quite day on economic developments. Fed Chairman Bernanke did testify before the House Budget Committee, but didn’t say anything new. Short covering of GBP/USD and EUR/USD pairs are underway as investors get ready for interest rate decisions from the ECB and the Bank of England tomorrow. Markets expect the asset purchase programme to expand to £325 billion from £275 billion now. The GBP/USD pair opens higher at 1.5920 this morning.
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Have a great day!