The Greek tragedy and the FX markets. Report Feb 13By james tweed • Feb 13th, 2012 • Category: Currency
Significant items this week:
Tues 14th Feb UK – CPI and RPI
EU – German economic sentiment
Wed 15th Feb UK – Jan unemployment
EU – German GDP for Q4
Thurs 16th Feb US – Philadelphia Fed manufacturing
Fri 17th Feb UK – December Retail Sales
Thank you for downloading the foreign exchange market report podcast for February 13th from Coracle Online and Crossbar fx.
“Diminishing marginal response” is how one can best describe the markets response to the twists and turns of the unfolding Greek tragedy. Resigned tolerance seems to be the order of the day while the new austerity measures insisted upon by EU finance ministers were agreed by Greece and then passed in their parliament over the weekend. Assuming they stick to their side of the bargain the new 130 billion Euro bailout for March will avert a messy debt default next month. The markets seem to be less and less influenced by each new flare up in Greece. Like Peter and the Wolf – everyone is already expecting another cry of wolf… but we suspect this time could be the last. The Greeks themselves are unhappy and it may be that they change their government before long… are the markets waiting for the EU to kick out the Greeks – which they say will never happen – or that the Greeks say we are leaving the EU – which they may if the populous don’t agree with the next 20 years of austerity. A Greek default would not come as a surprise to the fx markets, nonetheless it’s not yet fully priced in whilst a glimmer of hope remains.
Elsewhere in the EU 34 Italian banks were downgraded by the ratings agencies, and Germany hit a record Trade Surplus for 2011. The ECB left Interest rates on hold last week.
The Bank of England also left Interest rates unchanged last week, and decided to buy a further £50 billion of UK government bonds to stimulate the economy. This was less aggressive than many expected, and was widely anticipated throughout the market, so had little influence on the exchange rates. Looking ahead, the markets will decide if risk is to remain on, or if it is time for risk off… We suspect it will only become obvious once it has happened! UK inflation figures out this week will look great, but only because it is 1 year on since the VAT rise came in, and that now drops out from the annual equation. Unemployment and Retail sales will most likely provide grim reading. It is once again going to be a roller coaster as the immediate hurdle of debt repayments throughout Europe drags on.
Thanks for listening