Daily currency report
Overview
Investors finally received confirmation that Greece will be granted its second bailout package worth over €130 billion after Athens promised to implement tougher spending cuts, and private investors agreed to accept a more substantial loss on Greek bonds. However, Euro gains appear to be limited by concerns Greece will not be able to adhere to planned spending cuts and will require further aid at some point in the near future. The Australian dollar fell sharply after minutes to the Reserve Bank of Australia’s latest policy meeting left the door open to more rate cuts.
Sterling
Sterling fell by over half a per cent from the day’s highs versus the euro after China’s decision to relax monetary policy improved the global growth outlook and subsequently fuelled demand for risky stocks and currencies. Although sterling lagged the majority of its more yield-appealing peers, the pound inched closer towards November peaks against the US dollar ahead of data on Britain’s fiscal health.
US dollar
The US dollar is expected to suffer selling-pressure after European leaders ended months of speculation by throwing Greece another financial lifeline. Athens emergency loan, had forced traders to accumulate safe haven US dollar’s and maintain extremely “short” euro positions. Following the announcement on the Greek deal, the euro has edged towards December peaks versus the US dollar as investors bid the euro, and other yield-heavy currencies higher.
Euro
The eurozone finally sealed a second bailout for Greece worth over €130 billion that will allow Athens to meet significant bond redemptions due early next month and avoid default. Talks in Brussels between key figures continued long into the night before Jean-Claude Junker, head of the Eurogroup of finance ministers, announced that the leaders had secured Greece’s future within the single currency area. Private investors have reportedly agreed to accept a bigger loss on bonds than the original 50 per cent which had already been pencilled in. Meanwhile it is believed that the European Central Bank will forego profits on its Greek bonds which will be reinvested to help provide support after Greece accepted and proposed more severe spending cuts. Initial reaction in currency markets so far has been positive as the euro breached fresh three-month highs against the Japanese yen. However, their appears to be a sense of caution amongst investors who seemingly fear the deal has not saved Greece, but simply bought the debt-stricken more time.
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