Markets Hope Greece Will Manage To Avoid Default

Rejuvenated hopes that Greece will manage to avoid default and instead get a 2-year extension to its bailout program lifted the pair today. Touted short squeeze, as well as long EUR/GBP recommendation by Morgan Stanley aided the move higher. Der Spiegel reported that the Troika could be edging closer to granting a two-year extension to the Greek austerity targets, a topic that EU’s Rehn has been reiterating throughout the morning. However, the German government spokesman Seibert stated that the German government has ruled out taking a haircut on their Greek debt holdings, a situation that may be a necessity to fill the funding gap produced by the extra time for the Greek coalition.

GBP/USD
GBP/USD settled essentially flat, as the latest broker recommendation by MS to go long EUR/GBP was offset by a weaker USD. In terms of UK related commentary, Ernst and Young Item Club say that a revival on the high street is leading a return to growth in H2 of this year.

The report cautions that Q3 growth will largely reflect the one-off impact of the extra bank holiday in the Q2 and without the effect of the bank holiday, the growth figure would be closer to 0.2% (exp. 0.7%). Elsewhere, the property search website Rightmove said the autumn rebound showed "evidence of some life in the market," although it suggested the upturn is most likely to be due to a lack of properties for sale, meaning would-be buyers have less choice.

USD/JPY
The pair settled higher as risk appetite picked up following the reports that the Troika could be edging closer to granting a two-year extension to the Greek austerity targets. Over the weekend it was reported by the Xinhua news agency that China has "relatively large space" to use monetary and fiscal policy to support its economy as needed, PBOC’s Deputy Gov. Yi Gang. This also supported risk appetite but the underlying sentiment remained driven by the news flow relating to the eurozone.