Daily currency report

Greece moved one step closer to its next instalment of bailout cash which is currently being held back by its group of creditors demanding more stringent spending cuts. However, confidence politicians would agree a deal after all-night talks in Athens were dashed after the Greek Finance Minister confirmed stumbling blocks still remain. Nonetheless, the eurozone summit in Brussels is still set to go ahead fuelling speculation that a compromise agreement to save Greece from default will be rubber-stamped. Consequently, traders bid the euro higher to a two-month peak against the US dollar with Greek hopes naturally supporting general risk tolerance in financial markets. Appetite for higher yields may struggle to gain momentum though after Chinese inflation data raised concerns the People’s Bank of China may need to reign in spending which could then have a negative knock-on effect for the global economy. Sterling followed in the euro’s footsteps, rising close to three-month peaks before nerves kicked-in in front of the Bank of England policy meeting. Investors will keep a close eye on developments in Greece and the European Central Bank policy meeting but focus should centre on events in the UK. While the European Central Bank is not expected to make any changes to interest rates, the Bank of England is predicted to re-start its money-printing press for another round of quantitative easing. Traders are pricing in the possibility of another £50 billion worth of asset purchases in order to safeguard the UK economy from recession.

Sterling

After an initial run towards three-month peaks versus the US dollar, sterling dropped sharply across the board as nerves kicked-in ahead of the Bank of England’s monetary policy announcement. The pound’s brighter start was fuelled mostly by an increase in risk appetite which came from signs Greece would vote yes on austerity measures.

US dollar

The US dollar continued to suffer from renewed demand for risky assets as investors felt convinced Greece would eventually push through a deal to meet terms of its next bailout. As a result, the greenback fell to two-month lows against the euro and August troughs versus the higher-yielding Australian dollar.

Euro

Greece head into a crucial meeting with eurozone officials in Brussels without fully agreeing on spending cuts needed before Athens can qualify for additional bailout money. However, comments from the Greek Finance Minister imply that despite some stumbling blocks, a deal to save Greece from default could be reached. That optimism took the euro to two-month highs against the US dollar, thus supporting the single currency in other major crosses though investors still remain on guard.

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