Sterling Rallies As Grexit Chances Increase

17 June, 2015

Simon Eastman

Tuesday saw Greece as ever in the limelight as shares on the Athens stock market fell for a third day as investor fears over a Greek EU exit grew.

In the past three days shares have had 14 percent wiped off their value as the Greek government remain stubborn in their stance with Prime Minister Tsipras suggesting lenders were trying to “humiliate” his government. The ECB and IMF are demanding further spending cuts by the Greeks amounting to around €2 billion in order to secure the deal needed for the frozen bailout funds (around €7 billion) which they desperately need in order to repay short term loans of €5.2 billion and an IMF loan of €1.5 billion by the end of June. It’s all looking unlikely, meaning further defaults by Greece meaning markets will remain jittery about holding the single currency going forward, so we should see pressure remaining on the euro with one commentator suggesting if there is no positive movement towards a deal by this weekend the IMF and ECB could start to impose controlling sanctions on Greece, basically telling them what they can and can’t spend on, which will no doubt further infuriate the current anti austerity government.

In contrast to the ailing euro, the pound had a particularly buoyant day, making gains across the board following slightly more positive inflation figures earlier in the day. Although just coming in at 0.1 percent, it’s an improvement on the negative 0.1 percent from last month and a move in the right direction, helped by a rise in fuel costs in recent months. With the figure still way under the Bank of England 2 percent target, we should expect further price rises going forward and possible further involvement by the BoE chief Mark Carney who has recently made well placed comments towards the strength of sterling and its effect on inflation when we have seen sterling move to high against its main traded counterparties. If the pound becomes too expensive for the US or EU we will see exports hurt and this is not good for UK growth, so it would be prudent to no expect the current rally to continue for long.

Tomorrow we have further UK key data as the Bank of England minutes are released giving an insight into the recent round of voting regards our interest rates and general monetary policy decisions. We have seen murmurs of some members toying towards voting for interest rate hikes, which is sterling positive, so a unanimous no vote across the board with any mention of interest rate rises well into 2016 could be a blow for the pounds current rally. Couple this with inflation data for the EU and we could be in for an interesting morning of trading for anyone sending funds to Europe.

Later this afternoon it’s the turn of our cousins across the pond to hold their policy meeting as the Fed release their interest rate decision, economic projections and Janet Yellen hosts the policy statement and press conference all coming after the trading day. Anyone looking to buy US dollars might not want to gamble on their purchase just in case we see a surprise rate hike from the FOMC. A June hike has been bandied around for some time now and although recently this train of thought has been less in favour, it’s still an outside possibility.

Finally overnight we have GDP readings from New Zealand, with the Kiwi dollar being one under serious selling pressure of late, just like its antipodean cousin the Aussie dollar. For those looking to move money down under, we could see some volatility overnight and into tomorrow, especially if the stats come out other than forecast. Any improvement and we could see the tables turn with the Kiwi sure to take some benefit. As always, the CI team are here to offer some friendly guidance whatever your international payment may be so make sure to contact us today.