Foreign Exchange Insight : Greek Vote of Confidence Spares the Euro For Now, But EUR GBP and EUR USD Rates Slip

June 22, 2011 - Written by John Cameron

STORY LINK Foreign Exchange Insight : Greek Vote of Confidence Spares the Euro For Now, But EUR GBP and EUR USD Rates Slip

The Pound Euro exchange rate (GBP EUR) is 1.1285. The Pound Dollar exchange rate (GBP USD) is 1.6215. The Pound Australian Dollar exchange rate (GBP AUD) is 1.5325.

In a major development last night, Greece’s ruling Panhellenic Socialist Movement narrowly survived a vote of confidence, by 155 votes to 143, in Greece’s parliament. This means that Greek Prime Minister George Papandreou should now have the mandate to pass the €28bn worth of austerity measures which the EU-IMF are demanding before they will make available the final €12bn of Greece’s original bail-out.

However, Greece’s debt woes are not yet over, even though Eurozone Finance Ministers agreed in principal to arrange a second Greek bail-out when they convened on Sunday. The second bail-out would be partly voluntarily financed by private investors who would be given the option to purchase new Greek bonds when their current holdings reach maturity. It is far from guaranteed that such investors will want to commit further funds to Greek bonds, leaving Greece in a precarious position, as leading ratings agencies Moody’s and S&P have warned that any enforced extension of current bond terms would be viewed as a Greek default, plunging the ECB into crisis.

Although Asian equities markets responded well to news of the Greek vote of confidence, the currency market’s reaction was muted, with the GBP EUR rate initially slipping to 1.1255, but rapidly retracing back above 1.1300. The EUR USD rate responded in a similar fashion, initially gaining but then pulling back by almost a cent.

Meanwhile, the market’s focus will be diverted, for today at least, to global interest rates, with this morning’s release of the minutes of June’s Bank of England MPC meeting. Analysts expect the minutes to reveal that only two of the nine-member committee voted for a UK rate hike earlier this month, following the exit from the MPC of long-term hawk Andrew Sentance. If three or more members voted for a hike, Sterling is likely to gain.

Elsewhere, the key risk event for today comes in the form of Federal Reserve Chairman Ben Bernanke’ press conference, which follows this evening’s FOMC rate decision. Bernanke painted a dismal picture of the state of the global economy at his last post-FOMC conference, which sent the GBP USD rate spiralling to a yearly high of 1.6746.


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