Chancellor to play waiting game
German chancellor, Angela Merkel, expects negotiations with Greece about possible debt restructuring to drag on until bail-out funds run out. She has said that the EU are prepared to play a waiting game until April/May when the country approaches a cash-crunch. The Chancellor is taking a tough approach with the new Greek Finance Minister and it seems to be working. Greece has already shown signs that they will back down from earlier demands to cut their debt, with a new proposal apparently drawn up.
Rumour has it that the new administration would like to link the debt repayments to economic recovery in Greece, paying less at the beginning and – as the Greek economy strengthens – more later on. This is a good sign that the mooted ‘Grexit’ is less likely to actually materialise and that Greece is more than likely to remain within the eurozone. As a result, at around midday yesterday, the euro began to strengthen against the pound, gaining over a cent as highlighted in the first graph below.
It’s impossible to predict if rates will continue on this path, but if the ECB’s QE programme has the desired effect we could see further euro strength. It’s also worth bearing in mind that the main driving force behind the pound’s strength in 2014 was speculation over the potential interest rate rise, originally forecast for late 2014. As expectations are pushed back as inflation slows, we may well see the pound weaken further – it’s now expected that the Bank of England won’t be raising the base rate until August 2016 at the earliest.
Kicking off the day we have services PMI (Purchasing Managers’ Index) from the eurozone and the UK, with anything above 50 showing growth in the industry. In previous months the Eurozone has suffered from lower than expected figures and if we see this again we could see the euro weaken. The UK is expecting growth so we may see sterling/euro climb back into the mid €1.32s.
Across the pond the US has final services PMI and ISM non-manufacturing PMI, with both having the power to affect the markets. In previous months we’ve seen figures come in lower than expected and if this trend continues we could see the dollar weaken against its counterparts.
So what does this mean for you?
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