Pound US Dollar Exchange Rate Recovers Slightly As Greek Anti-Bail-Out Power Bid Fails

Published: Thursday, 10 May 2012 09:00 BST - Written by Toni Johnson

STORY LINK Pound US Dollar Exchange Rate Recovers Slightly As Greek Anti-Bail-Out Power Bid Fails

Yesterday’s afternoon session brought a rare piece of good news for the euro when Alexis Tsipras, the leader of Greece’s extreme left wing Syriza bloc, admitted defeat in his attempt to forge an anti-bail-out coalition government. Tsipras stated that his ‘dream of a left-wing government’ would not be coming to fruition, as talks with the Communist KKE and the Democratic Left broke down. Erstwhile ruling party, Pasok will now be given a chance to attempt to form a ruling alliance, but given the party’s dismal showing in last weekend’s general election, it seems unlikely that potential partners will feel that the ailing party has a mandate to govern.

The most likely dénouement to the current power vacuum in the troubled Hellenic state now appears to be another general election next month. The markets abhor uncertainty, so this is far from good news for the single currency. However, its much better than the alternative, if the alternative is a coalition government which fails to keep to the terms of the country’s bail-out package, triggering a disorderly default.

Meanwhile, yesterday also saw the stakes being heightened in Greece, when it was announced that the European Financial Stability Facility would be withholding the next €1bn of the nation’s emergency bail-out funding, pending the formation of a new government. This served to emphasise to participants in the Greek political process that any government which came into being on an ‘anti-bail-out’ ticket would be plunging its nation into further economic turmoil.

The news that a Greek anti-bail-out government will not be taking up the reins of power, in the very near-term at least, caused a slight uptick in risk sentiment in the middle part of yesterday’s North American session, sending the GBP USD exchange rate up to above 1.6150 once more. However, Chinese data released in the early hours of this morning, which revealed significantly lower imports and exports last month, suggesting a downturn in economic activity. This has taken the edge off risk appetite once more, causing the safe-haven Dollar to garner renewed support, causing the GBP USD exchange rate to dip to 1.6123 overnight. Further downside is likely for the pair in the near-term if the situation in Greece takes a turn for the worse.

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