Good morning and welcome to today’s foreign exchange market commentary on Friday, the 14th of December.
The latest round of Greek bailout has been approved after some delay. Greece passed the necessary legislations, the deal was approved by the relevant donor parliaments and debt buyback required by the IMF was duly completed.
However, the latest deal is not a photocopy of previous failed deals. This time they appear to have some real teeth at the insistence of donors. The “troika” wants to do to Greece (to prevent a “Grexit”) what the US used to do to Central American countries in the old days. The troika would take over Greece revenue and expenditures just as US navy would collect customs until its bonds were redeemed.
The upcoming EUR 49 disbursement will be subjected to various conditions. For example, a EUR 9.3 billion tranche requires the troika certificate that the Greece government has met a January deadline for tax reforms. Though it remains unclear whether that means merely passing legislations or actually restructuring the tax system since the country has a dubious track record for implementation.
If the Greek budget goes off track, as it has done always in the past, automatic spending cuts will kick in. The troika will also administer separate accounts for Greek aid and revenue money to ensure debt repayments have higher priority.
These difficult conditions put the Greece government in a dilemma; whether to defy the troika or the people. Going by past experience, one can expect Athens to defy the troika. Why? Because the Greek working-class considers international capital as an eternal enemy. Moreover, the troika lacks the political legitimacy of foreign capitalist interests.
It’s not a question of if, but when Greece will stop to comply. Possibly by next month if the past is any indication. It’s better to disregard earlier as Europe writes the check than to wait for German elections. The closer the elections get, the tougher it will become for Athens.
CURRENCY RATES OVERVIEW
GBP/EURO – 1.2303
GBP/US$ – 1.6128
GBP/CHF – 1.4871
GBP/CAN$ – 1.5864
GBP/AUS$ – 1.5284
GBP/ZAR – 13.9372
GBP/JPY – 134.98
GBP/HKD – 12.5032
GBP/NZD – 1.9082
GBP/SEK – 10.7218
EUR: The single currency traded in a narrow range against the greenback yesterday after EU leaders approved EUR 49 billion to Greece out of which EUR 34.3 billion will be released within the next few days. This, coupled with strong demand for Spanish and Italian bonds and a deal to appoint a common banking supervisor across Europe, supported the common currency, pushing it up to a eight month high against the JPY. We have the Services and Manufacturing PMI for Europe due for release today and the EUR/USD pair is trying to breach the 1.3100 mark after falling below the 1.2900 level.
USD: The logjam over US budget negotiations continues to weigh down equities. US stocks rose in early trade yesterday after initial jobless claims came in fewer than expected, but equities turned lower after House Speaker John Boehner said President Obama is not serious about considering spending cuts. Despite this, the GBP/EUR pair edged lower after George Osborne tried to play down the threat to UK’s AAA rating following Standard & Poor’s negative outlook on Britain, leading to speculations that the Bank of England will restart its assets purchase program. Cable fell against most of its 16 major peers after a report showed majority of UK manufacturers are witnessing a decline in orders even as they report improving business conditions. GBP/USD pair eased further overnight to open at 1.6117.
Have a great weekend!
