alexis tsipras / dollar / euro / eurogroup / exchange rate / financial market / forex / GBP/USD / Greece issues / macroeconomic analysis / pierre moscovici / pound / Sterling / Yanis Varoufakis

Eurogroup Gives Greece Only Few Days to Sign Extension

Sterling was pushed higher against an under fire euro yesterday as talks between Greece and the Eurogroup failed to deliver a settlement on Greek debts, sending investors to sell the single currency. GBP/EUR burst through the 1.35 handle and if a settlement isn’t delivered by the end of the week, this currency pair could have legs. On the flip side, cable again took the hit as uncertainty in currency markets sent investors to the safety of the dollar. GBP/USD lost some of its recent gains as worries over Greece and Ukraine continue to waver on investors minds. The big news for sterling today will be the inflation numbers, due at 09.30. The number expected is 0.3%, from last months 0.5%, but a lower figure, or even a negative number could send sterling spiralling down, especially against a resurgent dollar.

Euro jitters started to kick in yesterday afternoon as it started to become clear no deal would be reached between the Greeks and the Eurogroup. Greece was told that it has until Friday to request an extension to the current bailout or face the possibility of losing the pending funds after the second meeting of eurozone finance ministers in the last few days ended on Monday without an agreement between Athens and its partners. Greek Finance Minister Yanis Varoufakis, however, said the government would continue talks over the next few days, regardless of any ultimatums from its partners. Varoufakis claimed that he had been shown the text of a communique earlier in the day by European Economic and Monetary Affairs Commissioner Pierre Moscovici which he was happy to sign but that this was later changed during the Eurogroup meeting for a document he could not accept. Eurogroup President Jeroen Dijsselbloem said Athens had until Friday to request an extension, otherwise the bailout program would expire at the end of February. “Then, that’s it,” he said. After talks reached a stalemate, the euro faced heavy selling, dropping from over $1.14 on Monday to a low of around $1.1320 in early trade Tuesday, before bobbing back above to $1.1339. Against sterling there was also another slip as EUR/GBP fell through the 0.74 floor.

US stock markets were closed on Monday for President’s day, however there was plenty of action from the talks with the Eurogroup and Greece as Greek officials rejected a draft proposal to change the flexibility of its current bailout programme and to technically extend it for another six months. This combined with the frail cease fire which is just about holding in Eastern Ukraine sent investors scurrying for safety as risk appetite disappeared, sending market investors into safe haven holdings such as gold, the dollar and the yen. The greenback gained over a cent versus the suffering euro and pushed GBP/USD under the $1.54 handle. What next for EUR/USD and more specifically the single currency? The deadline on the credit extension is Friday, but before that the European Central Bank will re-assess on Wednesday the Greek Emergency Liquidity Assistance.The facility was extended earlier this month and has “helped offset concerns over the deposit flight from the Greek banking system. Any decision to cut-off ELA support will be negative for the markets (positive for the US dollar) and Greek financial system at large,” DBS Group said in a note Tuesday. They’re going to try to do everything they can to stop that because it is going to have a contagion effect and it’s going to move forward. If Greece’s banks collapse, what’s going to happen to Italy’s banks, what’s going to happen to Spain’s banks, what’s going to happen to Portugal’s banks?

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