Thoughts on the Greek Debt Swap deal

Thoughts on the Greek Debt Swap deal

Good morning and welcome to today’s foreign exchange market commentary on Monday, the 12th of March.

Developments in China have replaced headlines on Greece as Athens managed to avert a disorderly default last week. Recent Chinese data indicates a growth slowdown as investors look out for next growth story to allocate their assets. Beijing’s trade deficit came in highest in about 22 years while factory production in Feb. fell to its lowest since 2009. The Chinese central bank may follow loose monetary policy as growth slows down due to the European crisis and inflations remains under control.

Meanwhile markets remain on tenterhooks over the Greek deal succeeding after general elections in April/May. The fear is if Greece decides to leave the euro, several others may follow suit, triggering a wave of defaults that may cause a depression in Europe. However, historically countries that left any monetary union have witnessed short-term downturn followed by sharp recovery. Britain, for that matter, was dumped out of a currency union on Sep. 16, 1992 after it had entered it at too high an exchange rate.  This was followed by an economic boom though the country had witnessed a brief, sharp recession.

The situation is similar for weaker EU members now. If Athens decides to return to the drachma, it will have a much more competitive exchange rate, boosting exports. Indeed labour reforms are required along with trimming the hugely overpaid public sector. A country can run a permanent budget deficit as long as the economy grows. If growth stagnates, tax collection dips and deficit widens and borrowings spirals out of control. The weaker members of the EU have a long history of spending far more than their earnings, and accumulated debts are threatening their collapse now.


GBP/EURO – 1.1954
GBP/US$ – 1.5675
GBP/CHF – 1.4415
GBP/CAN$ – 1.5535
GBP/AUS$ – 1.4884
GBP/ZAR – 11.8871
GBP/JPY – 128.83
GBP/HKD – 12.1671
GBP/NZD – 1.9174
GBP/SEK –  10.6654

EUR: The single currency sits lower against the greenback. Euro’s gain last week following the Greek deal proved short-lived after better than expected US payrolls data pushed the USD up across the board. The UER/USD pair opens at 1.3125 this morning. The GBP/EUR pair has remained range-bound in the past 24 hours and the pair opens at 1.1948 this morning.

USD: The USD gained following strong employment data on Friday. Sterling had started the day high against the greenback after the Greek debt-swap deal. However, after strong hiring data emerged from the other side of the pond, the Pound tumbled beyond the recent ranges and touched 1.5660 during the day’s trade. Sterling has managed to retrace some of the losses and the GBP/USD pair opened at 1.5690 this morning.

Have a great day!


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