The Euro was well bid yesterday against the Pound and the US Dollar in the build up to the Greek debt deal
Sterling / Euro and US Dollar exchange rates
Greece avoided a messy default yesterday as its debt swap deal was completed successfully. Creditors holding 85.5% of Greek bonds participated in the exchange that will see €152 billion of Greek debt restructured. This should see Greece finally receive its second bailout package of €130 billion. The new issue bonds will see participants face losses of up to 74% real value, but to the large majority of bond holders this is a small price to pay to avert a potentially chaotic Greek default. Greece plan to activate Collective Action Clauses (CACs) to force reluctant creditors to cooperate, this will take the sum to 95.7% of all Greek debt.
The ISDA (International Swaps and Derivatives Association) will decide today at 13:00 GMT whether the use of CACs constitutes a technical default. If they conclude that Greece is in fact officially defaulting on its debt, then it will trigger Credit Default Swaps (CDS) in the region of €3.2 billion to bereaved bond holders.
The Euro was well bid yesterday in the build up to the deal rising by around 40 cents against the Pound and the Dollar, but lost ground immediately after as investors appeared to ‘buy the rumour, sell the fact’. The Euro to US Dollar Exchange Rate currently stands at 1.322 (11:00 GMT).
Some poor UK economic data this morning has pushed Sterling back down, as the Euro retraces its short term losses. Industrial Production fell from 0.4% growth in December to 0.4% contraction in January, marking an annual deficit of -3.8%. Manufacturing Production fell short of expectation, only improving by 0.1% as opposed to last month’s 1.1% rise. The Pound to Euro Exchange Rate currently stands at 1.192 (10:35 GMT).
Both the European Central Bank and the Bank of England maintained their current interest rates at 1.0% and 0.5% respectively. Considering the BoE’s asset purchasing scheme was upgraded very recently an increase in Quantitative Easing looked very unlikely and the central bank announced that the asset purchasing facility would remain at £325 billion. The ECB’s makeshift QE programme, the Long Term Refinancing Operation (LTRO), also kept the door firmly shut to any upgrades following last week’s liquidity injection of €529 billion in cheap 3-year loans.
The markets hardly reacted to the central banks as the focus of the day remained firmly on the Greek PSI debt swap deal. ECB President Mario Draghi gave a press conference afterwards detailing the outlook for the Eurozone economy, but his words were not met with affirmative action either. Draghi reduced Eurozone growth projections, citing “intensification of tensions in Euro area debt markets and their potential spill over to the real economy” and downside risks related to “further increases in commodity prices” – by which he means that there is a danger of banks freezing up and Iranian oil prices spiralling out of control.
The Eurozone GDP growth projection fell from (between -0.1% and 0.3%) to (between -0.5% and 0.3%). They also reduced GDP outlook for 2013 from (between 0.3% and 2.3%) to (between 0% and 2.2%). However the reductions lacked the intensity needed to move the markets and went by largely unnoticed.
Draghi went on to emphasise the positive initial impact of the LTRO’s 2nd round of liquidity injections before urging Eurozone leaders to push forward with structural reforms in order to stimulate competitiveness, reduce unemployment, minimise budget deficits and return to growth. Looking forward, later on today the US Non-Farm Payrolls are set to show a rise for the 17th consecutive month, with the possibility of a 210K increase which would trump the monthly average of 152K last year. The Pound to US Dollar Exchange Rate currently stands at 1.576 (10:33 GMT) but strong US data could weigh down further on the Pound before the week’s end.
CH 01:30 Chinese Producer Price Index (February)
EU 07:00 German Consumer Price Index (February)
UK 09:30 UK Industrial Production (January)
UK 09:30 UK Producer Price Index (February)
US 13:30 US Nonfarm Payrolls (February)
- The Pound is trading slightly down from yesterday at 1.208 against the Euro exchange rate
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