The euro was steady in early Asian trade as it held on to its overnight gains after dropping to a low of 1.0915 against the dollar on Tuesday. The scheduled meetings of the Eurogroup and Eurozone leaders ended without an agreement as it was revealed that Greece made no new proposal. However, Greece’s new finance minister Euclid Tsakalotos did present the outlines of a new proposal, which they will present in full detail on Thursday at another Eurogroup meeting.
If the new proposal is agreed, the IMF, European Central Bank and the Eurogroup will meet on Saturday to recommend a new bailout program for Greece. It is expected that Greece will today make a formal application for a medium-term loan from the European Stability Mechanism and final negotiations are expected to be concluded on Sunday where an emergency summit of all European Union leaders has been called. If no agreement is reached on Sunday, the ECB is likely to cut off all support to Greek banks.
The single currency advanced to 1.1017 against the dollar in late Asian session and it also strengthened against the pound at 0.7134. The dollar continued to fall against the yen, which is benefiting from safe haven flows, and was down at 121.81. The pound fell against the dollar as worries over the impact of a Grexit on financial markets has put pressure on sterling. It dropped below 1.55 on Tuesday and stood at 1.5430 in early European trade.
Asian equities suffered from the double fallout from Greece and the slump in Chinese stock market. Shares in Japan and Hong Kong were down by over 3%, while China’s Shanghai Composite and Shenzen CSI 300 index were down by around 6%, slightly off earlier lows at the open. Chinese stocks have slumped by 30% since June and more than 50% of listed companies on the two main exchanges have been temporarily suspended as a result. Regulators stepped up their efforts to prop up the markets by providing more liquidity to buy shares of small- and mid-cap stocks via state-backed brokerages as well as instructing state-owned companies not to sell shares.
The aussie dropped to a new six-year low of 0.7376 as worries over China’s shares slide weighed on the Australian dollar. The kiwi was steadier though at 0.6651. The Canadian dollar stayed near 4-month lows at 1.2753 against the greenback on weak trade data on Tuesday, which increased speculation of a rate cut. While stronger-than-expected trade figures for Japan out this morning gave additional support to the yen.
Aside from the ongoing developments with Greece, the main event coming up later today is the latest FOMC meeting minutes from the US Federal Reserve but the UK Budget statement, the first for the newly elected Conservative government, will also attract attention.