GBP/EUR 1.3897 (0.7195)
Stock markets around the world have been rebounding the last 24 hours, this has mainly been led by Chinese indices which have finally regained some footing. While this relief rally is encouraging, Chinese markets aren’t out of the woods yet and we could well see more volatility in the coming days. European markets also got a boost with encouraging signs from the Greek negotiations. While the commodity market which had been suffering from the contagion effect from the above global fears, took encouragement from the latest developments and both oil and copper regained some of their lost ground and were up again this morning. This therefore enabled some of the commodity currencies like CAD and AUD to halt their recent falls.
This morning the euro finds itself higher as the market seems to be optimistic of a resolution between Greece and its creditors. Only this morning we saw RBS lower its probability of a Grexit back to 40%. This is on the back of Tsipras’s doing an apparent U-turn on some of the original austerity points. He will now ask Greek MPs to vote on whether to back these proposals to secure a third bailout. The proposal Tsipras is putting forward is understood to contain many elements rejected in last Sunday’s referendum. You would think that this will be a tough sell seeing as the Greek people only rejected similar terms less than a week ago, so unless Tsipras has a rabbit in his hat like debt relief then I wouldn’t be so optimistic.
So while for now we are seeing the market becoming more and more optimistic about Greece, which is adding value to the euro. I would be confident that as the day goes on and we have no further news out than traders may look to reverse their positions here. And let’s not forget that even if the Greek parliament agree to the proposals put forward to them we will still have to wait and see if the German parliament do likewise.
Over to the US where Fed Chair Janet Yellen will be in the spotlight later on this evening. With sluggish global growth and concerns around Greece and China, it would be difficulty to see anything but a dovish Yellen here. We saw the minutes of the June meeting on Wednesday that while one Fed official was ready to beginning hiking rates at the meeting, “most participants” believed that conditions were not yet ripe for a rate increase. While many economists were expecting to see the Fed hike raise rates in September, the recent global happenings have now led many analysts to push back expectations until the end of the year or early 2016. Therefore any hawkish tone taken by Yellen this evening, will almost certainly see a dollar rally.