Will the Greeks have €300 million by Friday?

The UK’s economic calendar was extremely quiet yesterday with very few data releases. Manufacturing PMI was the highlight of day which produced a figure slightly off the expected 52.5 to read at 52.0. Sterling traded very much within its assortments yesterday as there were very little movements across all major counterparts. For example, GBP/EUR moved in a 90 pip range as the pairing opened up at 1.3863 Interbank (IB) and closed the London session at 1.3993 (IB), testing that psychological level of 1.40 (IB) again. We are witnessing a similar trend this morning as the pairing opened at 1.3853 (IB). Thursday will bring the Bank of England’s (BoE) MPC vote for the next interest rate hike so it will be interesting to see if all nine members are still in favour of procrastinating until 2016. Furthermore, the Asset Purchase Facility will follow suit which is the value of money the BoE plans to create and inject into the economy through open market bond purchases as a way to influence long-term interest rates.

With a busier calendar from Europe, the Germans kicked off the week with month-on-month (MoM) and year-on-year (YoY) CPI figures. The conclusion(s) met the forecast results with no surprises of 0.1% and 0.7% respectively. A similar trend was witnessed when German manufacturing PMI was released producing a reading in line with the consensus figure of 51.1. Furthermore, eurozone PMI fell short of expectations communicating a figure of 52.3 which is more disappointing news from the struggling economy.

With Greece having a €300 million-euro payment to the IMF looming this Friday, Greece’s anti-austerity government remains deadlocked with its creditors over aid terms. The four-month standoff between Greece and its creditors over the terms of the country’s bailout has taken a toll on its lenders. With Greek savers withdrawing bank deposits at a record pace and lenders relying on more than €80 billion euros of Emergency Liquidity Assistance to survive, the European Central Bank’s continued help is pivotal to Greek lenders. If the ECB’s Governing Council were to restrict ELA operations, Greece might have to impose capital controls, essentially capping the amount of money people can access from banks. All this uncertainly is causing the euro to weaken off against the dollar as the pairing traded to a daily low of EUR/USD 1.0885 (IB) yesterday. Very quickly we could see this pairing trade at parity if there isn't a solution between the Greeks and the IMF in the coming weeks and months. In addition, if the US continues to produce exceeding fundamentals over the summer months, theoretically, this should fuel more Greenback strength.

Across the Atlantic, the Americans witnessed some surprising (positive) data releases. Construction spending significantly increased from 0.8% to 2.2% for the month of April which is a compelling jump from one month to the next. Furthermore, ISM manufacturing nearly improved by 1% to beat expectations and show a reading of 52.8 for the month of May. The uplifting results from the US calendar powered more dollar strength yesterday afternoon as GBP/USD closed the London session at 1.5183 (IB). Is this a move back up to the psychological level of 1.50 (IB)? Moving forward to later in the week, Non-Farm payroll will be the highlight on Friday afternoon. Historically, the US economy tends to provide better than expected economic results in the summer months due the lack of bad weather. Please bear this in mind if you are a dollar buyer as currency analysts are predicting levels on GBP/USD in the 1.40’s for the coming months.