Good morning. Are we starting to see some concrete steps being taken to solve the Greece crisis, albeit affecting the private investor? Well, euro zone officials seem to indicate so. They said that private investors of Greek debt may have to accept a ‘haircut’ (financial term for losses) of 30-50 per cent, rather than the earlier agreed 21 per cent, before Athens is offered the next tranche of bailout money. Now those of you who bought Greek bonds (including the bankers), stop cursing. Remember ‘Something is better than nothing?’ Well, it may seem like a cruel joke, but that’s the buzz going around. However, the last word on the crisis is yet to be uttered.
On the other hand, something interesting is brewing in Finland. The Finns may be the first member to drop the euro. Though it may not have a catastrophic effect on the common currency as say a Germany or France quitting, further cracks may develop with the Slovaks taking serious note. Finland enjoys a current account surplus of €3.3 billion while its real assets overseas are higher by €28 billion than the liabilities, says economist Matthew Lynn in his paper Strategy Economics. There are other things going for the Finns as well. The country’s total debt is only 50 per cent of the GDP while the public sector deficit is forecast to be just 0.9 per cent of GDP. It can afford to leave. And if it does, it will save on the never-ending rising cost of supporting the EFSF as well.
The Finns have already demanded collaterals from Greece before further bailouts. Don’t be surprised if opposition to writing blank checks to Athens rise further in future.
Euro zone leaders, together with the IMF, had agreed on July 21 to release €109 billion to Greece through mid-2014. Private creditors were expected to take a 21 per cent ‘hair cut’ during the period, contributing another €50 billion.
CURRENCY RATES OVERVIEW
GBP/EURO – 1.1426
GBP/US$ – 1.5751
GBP/CAN$ – 1.6060
GBP/AUS$ – 1.5452
GBP/ZAR – 12.35
GBP/JPY – 121.41
GBP/NZD – 1.9828
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Euro: The single currency rallied against the greenback yesterday and settled at 1.3800 level. Better than expected industrial production level in the region and EU’s Barroso’s announcement on bank recapitalization helped the currency further. The GBP/EUR had rallied above the key 1.1363 level, stabilising around it yesterday. The GBP/EUR pair opens at 1.1407 this morning.
USD: Although yesterday’s UK jobless claims data were marginally better, unemployment rate touched 8.1 per cent from the previous 7.9 per cent reading. The GBP/USD pair however ignored the news and rallied 200 points to 1.5798 yesterday. The US Fed’s FOMC minutes revealed that the Fed is willing to go further to stimulate the US economy, much along the expected lines. The GBP/USD pair consolidated around the 1.5700 level overnight and opens today morning at 1.5742.
Elsewhere, both the AUD and the NZD continued to gain against the USD yesterday. This in turn meant losses for the GBP/AUD and GBP/NZD pairs. The GBP/AUD and GBP/NZD pairs open at 1.5441 and 1.9808 respectively this morning.