Analysis / Daily / Finance / forex

Euro Remains Under Pressure in Key Week for Greece

One Pound

Strength in the UK currency remains as no agreement on the Greek issue continues to drag the euro lower, keeping GBP/EUR around the 1.40 handle. Against the dollar we did see cable capped under the 1.57 level yesterday as better than expected US GDP numbers were printed. However we have seen cable strength in the early morning UK trading session but currency markets are expected to be choppy throughout the day as the EU economic summit kicks off.

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Consumer confidence in Germany is beginning to be dampened slightly by the uncertainty surrounding Greece, a poll found today. “The so far unsuccessful efforts to find a solution to the debt crisis in Greece and ward off the country’s imminent bankruptcy appear to be dampening the economic outlook for consumers,” market research company GfK said in a statement. That was, in turn, weighing on consumers’ willingness to open their purses and spend money. Looking ahead to next month, GfK’s headline household confidence index was forecast to slip fractionally to 10.1 points in July from a rise of 10.2 points in June. “Despite the slight drop, private consumption in Germany remains the main pillar supporting the economy. But the latest development shows that the consumer climate is also vulnerable to international risks,” GfK said. “The battle to resolve the Greek debt crisis is escalating and it is looking ever more likely that the country will default. And that could cause the economic motor to start stuttering,” it warned. The outlook for Europe’s top economy is beginning to cloud over, according to other leading sentiment indicators. But analysts insist recovery is not yet jeopardised, as a weaker euro and falling oil prices provide a boost to the country’s exporters and a robust labour market and rising wages fuel domestic demand.

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The dollar was steady yesterday as markets await some kind of outcome on the Greek issue. US equity markets closed in the red after a lack of any notable progress with Greece and its creditors which saw treasuries finish higher although they did slip slightly following a soft 5-year note sale. Elsewhere, there were  pockets of strength in the fresh numbers that could support a more robust rebound in Q2 but the dollar strength and cheap oil remain the main headwinds. The latest revisions to the US GDP in the first three months of the year not only revealed stronger household consumption but also higher incomes which augurs well for the economic rebound in the second trimester. However, there’s no denying that growth fell off sharply since last year – the economy suffered not only under the weigh of the dollar and reduced energy investment but also from extreme weather and seasonal adjustment problems.

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