Eurozone in crisis ahead of Greek vote

Thursday 3rd November 2011
Good morning. Sterling rose slightly against the US Dollar and Euro yesterday, as the Greek referendum took centre stage and weakened the Euro. Markets’ focus turns to monetary policy meetings in the U.S. and Europe today, and also the G20 meeting where Europe’s escalating debt crisis is set to be the main subject of discussion. At 08:30am this morning rates are as follows:

GBP/EUR 1.1623
GBP/USD 1.5923
GBP/AUD 1.5551
GBP/NZD 2.0281
GBP/CHF 1.4121
GBP/CAD 1.6210
GBP/ZAR 12.8013
GBP/JPY 124.20
GBP/DKK 8.6462
GBP/NOK 9.0396
• EUR/USD 1.3700

Eurozone in crisis ahead of Greek vote

The eurozone has been plunged into renewed turmoil by Greece’s decision to hold a referendum on the EU’s offer to bail out its stricken economy. EU leaders fear that should Greece deliver a “no” vote it may plunge the country into a disorderly default and spread financial contagion to Italy and Spain. The developments have weakened the Euro and pushed rates higher in the last few days.

Last month the European Commission, the European Central Bank (ECB) and the International Monetary Fund (IMF) said they had reached agreement with Greece on reforms to put the nation back on track. They have now however suspended the next bailout of €8bn in and called on Athens to decide whether or not to remain in the eurozone.

Eurozone leaders fear that should Greece deliver a “no” vote it may plunge the country into a disorderly default and spread financial contagion to Italy and Spain.

EU Interest Rates today

At 12:45pm we have the ECB interest rate decision. Rates will probably be left on hold, but in the press conference afterwards watch for any sign rates may be cut in the coming weeks. Any negative comments could weaken the Euro and push GBP/EUR rates higher.

China’s EU aid in doubt

China has said it cannot commit to investing in the European Financial Stability Fund (EFSF) until the situation with Greece has been clarified. European leaders hoped that China would buy EFSF bonds, injecting capital in the region’s financial markets. The EFSF was one part of a three pronged rescue plan put together to solve eurozone’s debt crisis.

UK at risk of falling back into recession

There is a strong chance the UK will fall back into recession even if eurozone leaders find a resolution to the debt crisis. NIESR said that whatever the outcome of the G20 meeting, the UK could well return to recession by the end of 2012. This could of course weaken Sterling and push rates lower.

Today’s Data

Australian retail sales are released today. There is the G20 meeting also that may throw up a few surprises. In the USA there are jobless numbers. In the EU we have an interest rate decision followed by a press conference – this often causes swings in GBP/EUR rates

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