Greece's new proposal critiqued

This week has been relatively quiet in terms of fundamental data from the UK and yesterday was no exception; the only major release coming in the form of second estimate q/q GDP figures which came in line with expectation at 0.5%. Prelim business investment was also released, however, despite under-performing against the forecast by some -0.6%, the real focus was on matters outside of the UK as the whirlwind of events in Europe once again took centre stage over any UK data. So far this week, the pound has enjoyed a run of good form against its peers and yesterday saw it break through the key level of 1.37 interbank (IB) against the euro and within a 155 point range against the dollar where its fortunes were a little mixed. It appears that risk averse investors are seeing the pound as a flight to safety, as other currencies experience levels of turbulence that not only alienate them from such investors, but also make it difficult to stabilise a ‘normal’ rate. Nevertheless, current levels make it attractive for pound sellers, especially since most analysts had forecast levels on GBP/USD into the mid-range 1.40’s (IB) by now and that levels buying the euro are the best for some seven years. As mentioned, this week has been particularly light in terms of data, with no releases today either. It is worth watching the impact of news elsewhere on the pound. Periods of such stability are few and far between and as such pound sellers should be acutely aware of the opportunity that currently presents itself, especially as next week sees manufacturing, construction and services PMI data that is sure to move the markets once more.

Fundamental data from the eurozone has taken something of a back seat of late as attention has been focused on the Greek debt talks. Yesterday saw no releases of tier one data from the bloc, with the most notable figure coming in the form of German unemployment change numbers that dropped by -20k against the estimate of -10k, highlighting an improvement in the German labour market. As most of us know by now, Greece has successfully, subject to approval, reached a last minute deal with its creditors to extend its €172Bn bailout, bringing a much needed sigh of relief to members of the bloc and world alike. Whilst the risk of banks runs and, even worse, bankruptcy seems to have been avoided, or possibly just delayed, there are still major risks for Greece. Primarily, Greece has ongoing obligations to complete the requirements of the existing bailout program before any of the further €7.2Bn in aid can be distributed. And, whilst it is becoming clear that Athens is running out of money, they may need to seek external assistance to meet these terms. But, secondary to this, it is worth noting that this is just the start of what can only be seen as a set of huge commitments that Greece has to make, with a four month extension likely to fly by and further debt payments of €6.7Bn due in July and August. Such a task of restructuring, stabilisation and ultimately recovery is mammoth and is being reflected in the markets with the euro losing some 0.67% against the pound and 1.34% against the dollar yesterday dipping just below the 1.12 (IB) handle. Seemingly, there is a lot more lead in the euro pencil, with the next few weeks and months key to ongoing pricing levels of the euro and the future stability of the single currency. German prelim CPI m/m inflation data will be the highlight today, expected to print at a positive 0.6% against the previous months -1.1%. The same component is due from Spain - however, this is considered lower impact. Outside of this, any further developments with Greece will be key to the makeup of the market.

Yesterday saw a string of data releases from the US, with CPI inflation data, core CPI inflation data and unemployment claims data all released at 13:30 GMT. Core CPI data ticked up against forecasts, printing at 0.2% and the forecast of 0.1%, dispelling the idea that low fuel costs were pulling inflation down, with the rise in service sector costs being attributed for the buoyant figure. There had been a theory that the drop in fuel costs would have a ripple effect to the goods and services sector, leading to a prolonged drop in prices that would put an abrupt halt to any chance of an interest rate increase. However, it seems that while Americans are saving money in some areas, they are happy to spend in others, helping sustain demand and underpin growth. After Fed Chairman Janet Yellen’s comments earlier this week, claiming a rate rise will not take place before June, the dollar had slumped to its lowest levels in 2015 against the pound. However, despite the unemployment claims number increasing by some 25k, showing a minor pull back in the labour market, the dollar seemed buoyed by the positive inflation data pulling back over 100 points against the pound, closing the London session at 1.5423 (IB), with EUR/USD prices breaking through the psychological 1.12 (IB) level, before settling at 1.12107 (IB). The highlight of today on the data front will be prelim q/q GDP figures released at 1:30pm GMT, expected to print at 2.1% against the previous month 2.6%. After which, a string of medium impact data is due, before Fed members Dudley and Fischer address a panel discussion at the 2015 US Monetary Policy Forum. Next week looks key, with the non-farm payrolls set to take centre stage on Friday – expect movement here.