Greece Thrown Final Lifeline

It was a fairly quiet end to last week for our most commonly traded currency pair, GBP/EUR, with the cross remaining in a tight range for most of the day.

It was a different story for GBP/USD however, as the US currency lost nearly one percent to the pound.

Optimism over the potential for an agreement between the Greeks and Eurozone leaders, and a stabilisation of the Chinese stock market, led to an improvement in risk appetite and weaker demand for the safe-haven dollar. The graphs below show GBP/EUR and GBP/USD movement over the last week.

Greece Thrown Final Lifeline

Investors were reluctant to commit to GBP/EUR positions on Friday ahead of the emergency euro summit scheduled for Sunday, in which the Greeks and Euro zone leaders would attempt to thrash out a last-minute deal to try and save the nation from a potential Grexit.

Over the weekend news broke that the meeting of the 28 heads of the EU member states had been cancelled to allow Eurozone key players more time to reach an agreement with the Greeks.

With negotiations continuing past the 12pm deadline, it emerged late last night that a draft deal had been proposed by Wolfgang Scheuble, allowing the Greeks 3 days to avoid an exit from the currency bloc, with the struggling nation facing a ‘time-out’ from the currency union if the government does not agree to implement demands from its creditors.

Athens now has until Wednesday to implement a series of harsh austerity measures to unlock another €82-86bn in a proposed third bailout deal.

The reforms will include cuts to pension payments, a rise in Value Added Tax and the privatisation of around €50bn in government assets which would be transferred into an ‘external fund’ managed by Brussels.

As part of the proposal, Greece will have to agree to being heavily scrutinised by European debt inspectors from the European Commission, IMF and ECB, monitoring the country’s progress.
“In case no agreement could be reached, Greece should be offered swift negotiations on a time-out from the euro area, with possible debt restructuring,” the draft text said.

Surprisingly, there was little movement for euro crosses as Asian markets opened early on Monday morning.

However, the Japanese yen, Asia’s safe-haven, strengthened by 0.6% against the euro as speculation began in earnest with markets reopening after the weekend.

There will likely be a similar reaction in EUR/USD and GBP/USD as Western markets open and we’re likely to see continued volatility as we approach Wednesday’s deadline.

The new proposal puts the Greek premier, Alexis Tsipras, between a rock and a hard place as the austerity reforms are harsher than the previous proposal, which the Greeks voted against in last week’s referendum.

Tsipras said yesterday that he was ready for an honest compromise but Greek officials have called the proposals ‘humiliating and disastrous’.

So, it looks as though the proverbial can has been kicked down the road, yet again. Here’s hoping that a deal is struck by Wednesday and we can turn our attention back to good old-fashioned ecostats, inflationary conditions and rumours of shifts in monetary policy.

We’re all tired of hearing about Greece and the latest developments in this saga but remember, it’s thanks to them, that those San Miguels you’ll be drinking in a few week’s time are now fifteen percent cheaper than they were last year.

News broke early on Monday that an agreement had been reached between Tsipras and Greece’s creditors, essentially agreeing to the conditions outlined in Scheuble’s proposal.

EU president Donald Tusk announced first thing this morning that a deal had been reached after 17 hours of talks, lasting well into the early hours of this morning.

The finer details of the deal will become clearer throughout today but it appears Tsipras has agreed to the implementation of Scheuble’s reforms, shoring up another 3-years of bailout funds, saving Greece from a Grexit at the very last minute.

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James Baxter
Senior Currency Broker
[email protected]
Foremost Currency Group