GBP/EUR 1.4043 (0.7120)
Unfortunately we still haven’t got an ending to this Greek tragedy, in fact we could still yet have a long way to go before we eventually reach our grande finale. The latest twist in the tale will see Tsipras present a third bailout package to the Greek parliament where he faces an open mutiny from his own Syriza party. Tsipras will face tough opposition over the next 24 hours as he will need to have four pieces of legislation passed by the end of Wednesday, which include the previous sticking points of pension and VAT reforms. Since returning from negotiations we have already had a handful of Tsipras colleagues come to the fore stating they cannot support the proposal put forward. Therefore Tsipras will now have to rely on opposition votes in order to get the legislation through parliament to secure the €86 bln funding that Greece so badly needs. While the leaders of all three mainstream opposition parties have said they will help him pass the terms of the bailout, another concern arises for Brussels with the prospect of a collapse in Tsipras’s split government.
Given the latest Greek update above, this week maybe one where sterling related news comes to the fore. As mentioned yesterday, first up this morning we have key CPI inflation data. The year on year figure is again expected to remain subdued with the annualised reading likely to show no changes in prices versus a 0.1% increase last month. The core reading excluding the likes of energy prices is expected to continue showing 0.9% yoy increases. Whilst subdued inflation is fully expected in the short term, it is the forward looking element of future price increases is where market attention will lie. This morning’s release will obviously not shed any light on this, however, Bank of England Governor Mark Carney is sitting before UK lawmakers on the Parliament’s Treasury Committee today too, to discuss the economic outlook and financial stability. Whilst the BoE’s own MPC committee is currently unanimously in favour of keeping interest rates at all-time lows, splits may start to remerge with the two most hawkish members Martin Weale and Ian McCafferty likely to start pushing again for rate hikes soon. A key variable in determining future inflation expectations is wage growth and in a timely fashion, the latest reading is scheduled for release tomorrow morning. Labour data is expected to be encouraging for the next couple of months with the likes of wage inflation expected to rise at an annual 3 percent rate through May. Also out tomorrow morning, the unemployment rate is set to remain at 5.5%.
UK equities have been putting in a strong performance of late with the likes of the FTSE 100 posting gains for four consecutive days advancing 4.8%, the most since December. Whilst external factors such as the Greek agreement and a halt in the slide of Chinese equities have contributed to these moves, the general performance of the UK economy is also a contributing factor. Similarly the pound has started to make some headway over the past few trading days and strengthened versus all of its 16 major peers on Monday. Over the past three months, the currency climbed by over 6 percent against a basket of G10 currencies, the most in that group. Versus the single currency, EURGBP dipped its toe below the .7100 mark again, hitting a session low of .7084 (1.4116) yesterday.