Analysis / Daily / Finance / forex

Greece Crisis Deepens – Euro Down

One Pound

Sterling hit a one-month high against a weakened euro on Friday, racking up its third straight week of gains on the back of revived expectations for a rise in British interest rates at the end of this year. A jump in wage growth and signs of renewed dissent on the Bank of England’s policy committee to keeping rates on hold at record lows have prompted money markets to price in a chance of a rise as early as December. The latest batch of headlines about Greece prodded the single currency broadly lower in late afternoon trade in Europe, and sterling rose around half a percent to less than 71 pence per euro. Against the dollar it was flat at $1.5746.

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The euro was off its session lows but still sharply down on the day in Asian trading today after Greece failed to strike a deal with its lenders, taking it a step closer to a debt default that could force its exit from the euro zone. The Swiss and Japanese currencies, both of which often appreciate during times of uncertainty on their perceived safe-haven status, were broadly higher, while the dollar notched a three-week high against a basket of currencies. The euro fell to a one-month low of $1.0955, from around $1.1165 late on Friday. It had last recovered to $1.1010, still down about 1.4 percent on the day. Against the Swiss franc, the euro fell as low as 1.0256 francs according to Reuters data, its weakest level since late April, and was last buying 1.0331 francs. The euro also plumbed a one-month low around 133.80 yen on EBS, and was last at 135.33 yen, down about 2.1 percent. But the likelihood of a Greek default on a 1.6 billion-euro payment to the International Monetary Fund by a Tuesday deadline appeared greater after Athens effectively rejected proposals made by its European lenders in exchange for more credit at last-minute bailout talks at the weekend. Greek Prime Minister Alexis Tsipras shocked European officials by instead calling for a referendum to be held on July 5 to ask Greek voters to decide whether to accept the bailout terms which his government opposes. Athens also closed banks and imposed capital controls to prevent a collapse of its banks as anxious investors pulled out their cash. Some investors had begun paring bets on the euro even before the situation reached its latest crisis point, according to Reuters calculations and data from the Commodity Futures Trading Commission released on Friday. Net short positions in the euro increased to 99,306 contracts in the week ended June 23 from the previous week’s 89,357 contracts, which was the smallest level of net euro short positions since late July. A Greek default could set it on a path out of the euro-zone, which many investors fear could fatally weaken the entire currency bloc. Analysts said that in addition to increasing uncertainties about Greece’s future in the euro zone, the vote would raise political risks for Tsipras’s government if the public votes in favour of accepting the bailout proposals.

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The dollar edged higher against a basket of other major currencies on Friday, after data showed that U.S. consumer sentiment improved unexpectedly this month, fuelling further optimism over the strength of the economy. The University of Michigan reported on Friday that its consumer sentiment index rose to a five-month high of 96.1 this month from 94.6 in May, exceeding expectations for an unchanged reading. The University of Michigan also reported that its inflation expectations for the next 12 months remained unchanged at 2.7% in June. The U.S. Dollar Index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was up 0.21% at 95.57.

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