It was another hectic day for the currency markets yesterday, with the on-going saga in Greece continuing to dominate headlines. You could forgive some of our regular readers if they were getting bored of the subject but until either Greece leaves the single currency, a scenario I still think remains unlikely, or a resolution with its creditors is met then this story will rumble on.
The market volatility, particularly on GBP/EUR is reflected in the table above with huge swings during the past month. With the situation in Greece evolving almost on an hourly basis, it is very difficult to pin-point exactly how the currency pair will react over the coming days. However, yesterday Greece’s Prime Minister Alexis Tsipras performed a U-turn on his recent commitment to shy away from any IMF proposal and it now seems he is ready to accept the terms on offer.
As mentioned in yesterday’s report Greece did not pay back is scheduled repayment on Tuesday and as such defaulted on its repayment, which caused the EUR to lose value against the Pound. The IMF were keen to offer further talks but Mr Tsipras decided he would take the vote to the Greek public by calling a referendum for this Sunday, so the Greek people could decide whether or not to accept the reform proposals being put forward.
Unfortunately for Mr Tsipras this stance seems to have backfired as no outcome from the referendum was likely to help his cause, as a NO vote would have alienated Greece form its creditors completely and a YES vote would see his position as Prime Minister become unobtainable. He has now tried to back track and has accepted the new bailout proposals minus a couple of minor changes but it now seems as though Germany in particular, want to see the outcome of the referendum before discussing any further proposals. It almost like they are saying to the Greek government that they have made their bed and now they must lie in it.
Personally I feel a resolution will be reached, which will give Greece at the very least another stay of execution and therefore I would be very tempted to take advantage of the current levels, which remain close to an 8 year high.
Cable exchange rates have fluctuated by 4% over the past month, with the global uncertainty surrounding Greece having a knock on effect on all the major currencies. With so much negative feeling it is likely investors will continue to sell off their EUR positions and move to safe haven currencies, such as the USD. This in turn will strengthen the Greenback and we could see an improvement against the Pound, especially if the US FED look to raise interest rates later this year.
Economic data from the US has also improved as indicated by yesterday’s ADP employment figures, which showed better than expected results. This, along with better than expected Manufacturing data has helped to push the USD back towards 1.56 on the exchange. We also have a host of key economic data out today for the US, including the latest Non-Farm pay-roll and unemployment figures. Although Non-Farm figures are expected to show a softer increase than last month, yesterday’s ADP data could mean these come out better than expected, which would almost certainly boost the USD’s position.
It’s been a volatile few weeks for GBP/AUD exchange rates as indicated from the table, with the pair hitting a fresh 6 year high last week. However, as often happens when there is an aggressive spike in the market we have seen a realignment, with the pair moving back following market support for the AUD. With the pair still trading above 2 it may be that we have seen Sterling hit a peak and an improvement in Chinese data and growth forecasts last week may have been the catalyst for this spike. The links between China and Australia have been discussed heavily in previous reports but due to their inextricable trade links and improvement in China’s economy usually has a positive knock on effect for the AUD.
This spike could continue as we head towards the end of the trading week, with Australian Retail Sales figures released overnight on Thursday expected to show an improvement on previous figures at 0.5% growth. If this prediction turns out to be correct then it is likely the AUD will gain further support and could make a move back towards 2. Therefore I would not be gambling on such a volatile market and would look to take advantage of current levels whilst they remain above this threshold.
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