Analysis / Daily

Greece Scrambles to Keep Deal Alive

The pound edged upwards for a fourth consecutive week against the dollar but momentum clearly slowed amid the markets’ preoccupation with Greek debt woes. Close to half of UK exports are destined for markets in the Euro-zone, making the economy highly sensitive to turmoil across the English Channel. Furthermore, sterling has often acted as a regional safe haven at times when the viability of the Euro has come into question, opening the door for volatility in the event of an adverse outcome. This opens the door for the UK unit to resume trading on recovering rate hike speculation triggered by a hawkish-sounding Bank of England Quarterly Inflation Report. The document’s pro-tightening message may be further reinforced as BOE Governor Mark Carney, Deputy Governor Ben Broadbent and MPC committee member Martin Weale testify about its contents to Parliament’s Treasury Committee. Investors now price in at least one increase in the baseline lending rate over the coming 12 months, with futures markets reflecting bets on a move in the fourth quarter of this year.

The euro held steady overnight after it rallied on news of a last-minute deal to extend Greece’s bailout, giving Athens a critical lifeline to pay its bills and avoid a damaging default. But European finance ministers gave Athens until late Monday to present proposals that would convince its creditors to sign off on the extension. On Sunday, Athens was racing to finalise reform proposals required under the fresh agreement. Greece’s bailout programme expires at the end of the month. Without an extension, Athens could run out of money and be forced out of the single-currency bloc.

The dollar was almost flat against the yen and the euro in early morning trade, with investors avoiding taking strong positions ahead of Federal Reserve Chairwoman Janet Yellen’s testimony before Congress later this week. The risk averse mood has taken a breather with an agreement for a four-month extension of a Greek bailout. The situation also cleared up with the Japanese stock market renewing a fresh 15-year high in the morning. By later today, Greece has to present a list of budget cuts and economic overhauls that have to pass the scrutiny of its lenders – the European Commission, the European Central Bank and the International Monetary Fund. The greenback was changing hands in a tight range since the beginning of the Asian trade, as investors are cautiously waiting for Fed Chairwoman Janet Yellen’s testimony before Congress Feb. 24-25.

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