Euro pressure continues
GBP rallied close to levels we haven’t seen since 2007 yesterday as the Greek impasse extended to another day and markets continued to re-price the likelihood of a Bank of England interest rate hike in 2015. GBP/EUR topped out at 1.4154 yesterday, around a cent lower than its year to date high of 1.4257. Anything higher than that and we are looking at the highest levels since before the Global Financial Crisis. Talk of the 1.50s in GBP/EUR would surely abound in such a circumstance.
The euro weakness is yet again the result of vacillation on the part of the Greek negotiating team. Consultations between Greece and its creditors were cancelled yesterday and postponed until today as an agreement around a possible tax on withdrawals from ATMs fell apart. Apparently this was in a bid to get more Greek people using credit cards. If you wanted the Greek debt crisis boiled into a microcosm, ladies and gentlemen, there it is.
Greece to overshadow G7
The G7 meeting of finance ministers and central bankers taking part in Dresden today will be held under a very familiar cloud. Previous meetings have debated trade and relative currency performance, and with an absence of those to chew on we must think that thoughts will turn to Greece. We can also expect debate around international controls on corporate tax avoidance.
US negativity overdone
USD has given back some of its strength overnight following a session of resurgent data. Durable goods orders excluding transport rose by 0.5% in April, suggesting that a strong sense of confidence is returning to US business, while sales of new homes rose 6.8% on the month. There is more and more to suggest that the US economy, while dealt a heavy blow in Q1, is repairing itself through Q2. The stronger, more present data may limit the impact of a reduction in GDP into negative territory when released on Friday afternoon. Let’s not expect too much of a slackening of the USD; it is still the premier asset to be holding in currency markets in my opinion.
The day today
Elsewhere, markets are generally rather sideways. The main data release of the day is the rate decision from the Bank of Canada. Recently the meetings of the BOC have been seen as a bellwether for other central banks that have been largely affected by the declines in energy and other commodity markets such as Australia, New Zealand and South Africa. None of the economists surveyed by Bloomberg are expecting any hike or cut away from the current base rate of 0.75%. I agree with the consensus but I have to remain negative on the CAD in the face of a fresh wave of oil selling. Traders seem to want 1.25 in USD/CAD and may get it by the end of the week.
