Analysis / Daily / Finance / forex

A Hellish Week Ahead For Greece

One Pound
Sterling gained against a broadly weaker euro on Friday, rising to a 10-day high, as worries about Greek default drove investors to move out of the single currency and into safer havens. Sterling was steady against the dollar at $1.5512. It was supported by data that showed Britain’s economic growth rate was stronger than previously estimated last year and in early 2015. Gross domestic product rose by 3.1 percent in 2014, up from a previous reading of 2.8 percent, under the revisions announced on Friday, the Office for National Statistics said. Sterling was on track for its best weekly performance in a month against the dollar, bolstered by expectations that the UK economy was growing at a healthy pace in the second quarter and the Bank of England would raise rates in a year’s time. Some fund managers, like UBS Wealth Management, expect the BoE to follow the U.S. Federal Reserve in raising rates sooner.

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The euro has lurched lower in Asian trading today,  after efforts to end a deadlock between Greece and its creditors broke up in failure over the weekend. Tellingly, the talks on Sunday lasted less than an hour, suggesting the differences between the two parties may be too wide to bridge. The common currency fell 0.4 percent to $1.1215, retreating further from last week’s peak of $1.1387. Against the yen, the euro slid 0.4 percent to 138.46, well off a recent high of 141.02. Euro zone finance ministers would now tackle the issue when they meet on Thursday. But with no technical deal apparently possible, they are likely to have to make difficult political decisions on Greece’s membership of the currency bloc. Failure to keep Greece in the euro, after years of arduous negotiations and two emergency bailouts totalling 240 billion euros, would send it slipping into the unknown and mark a historic blow to the EU’s most ambitious project.

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The dollar ended last week lower against the other major currencies on Friday as uncertainty over whether the Federal Reserve will offer fresh indications on the timing of interest rate hikes at its upcoming policy meeting weighed. The U.S. Dollar Index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was at 94.98 in late trade, flat for the day. The index ended the week down 1.42%, the second straight weekly decline. Data on Friday showed that U.S. consumer confidence improved in June as signs of improvement in the labour market spurred expectations for wage gains. The preliminary reading of the University of Michigan’s consumer sentiment index rose to 94.6 this month from 90.7 in May. Another report showed that the U.S. producer price index rose 0.5% in May, the largest increase since September 2012. The data came after other economic reports earlier in the week, including on retail sales, underlined the view that the economy is regaining momentum in the current quarter after a lacklustre first quarter.

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