Market News & Insights
6 January 2015

Back to the future with Greece..

EUR/USD 1.1920
GBP/USD 1.5194
GBP/EUR 1.2747 (0.7845)
EUR/CHF 1.2013
GBP/CHF 1.5313
GBP/AUD 1.8673

As markets get back to normal and most having the opportunity to fully digest all information and forecasts for 2015, it’s a scene reminiscing of past years and back to that age old question of the Euro and will it survive. Draghi has done a fantastic job to steady the ship and put out many fires over the last few years, but this year will be his most testing yet with Euro looking to be in freefall and the other major economies heading in the opposite direction.

The country that will give him sleepless nights, Greece, has raised its head again and offering more headaches with the up and coming elections and instability marking almost five years since the Greek crisis first exploded onto the world stage. In late January 2010 the then-prime minister George Papandreou stood up on the main plenary stage at the World Economic Forum in Davos and declared that his country was under attack by speculators. The country sought a bailout three months later. But, more significantly, 2015 was supposed to be the year of the Greek recovery. The country however is still regrouping following the deepest post-war recession of any developed country. More than a quarter of the eligible working age population are still out of work – and around half of all those are under the age of 25, yet still Greece seemed to have turned the corner. In 2014, unemployment had started, very gradually, to fall. The government’s austerity plans were coming to an end. The country had attained a primary surplus, meaning that when debt interest was ignored it was finally earning enough tax revenues to finance its spending and, to cap it off, the International Monetary Fund expected it to be the fastest-growing economy in the Eurozone next year (after Ireland). Instability is in the form of electing a government which is steadfastly against either the euro or the terms of its bailout and it could cause major disruption in the single currency area. That’s what could happen if the political party Syriza wins the election. It could well happen in Spain too if Podemos, the fast-growing new anti-bailout party wins the country’s elections at the end of the year. Greek elections are due to take place on the 25th of this month just a few days after the ECB meeting on the 22nd, potentially announcing his stimulus plans.

GBP/EUR continues to test holding above 1.28 as EUR/USD tests 1.19. On the data front we have had positive Spanish PMI released earlier with Italian PMI due to be released in a few minutes.

Stateside last night we had San Francisco Fed President Williams speaking. He expects the tightening pace to be pretty gradual and US Fed are in no rush to hike rates with the Fed’s policy to be data dependent on the pace of the lift off as the slack disappears from the US economy but divergent FED, ECB, BOJ policies will cause turbulence. On the data front we have services and manufacturing PMI out later today where we will look to see if the positive US data continues.

In the UK the focus is on Thursday with the BOE due to keep interest rates at the record level of 0.5% amid weakening inflation threatening economic growth. Policy makers also voted to maintain cash stimulus at £375 billion. Britain’s 12-month Consumer Price Index (CPI) rate increased to 1.3% in October from a five-year low of 1.2 percent in September, but remained far below the BoE’s government goal of 2.0%.