Currency markets were left waiting for most of the week as negotiations took place simultaneously over the Ukrainian situation and Greek debt stand-off. Ultimately, four-party talks between the Ukraine, Russia, Germany and France yielded a cease fire, weakening safe haven currencies such as the yen and Swiss franc, while bolstering CEE currencies such as the Polish zloty and Czech koruna. An emergency Eurogroup meeting held mid-week was less successful on coming up with ways to handle Greece’s debt problem but talks were scheduled to resume on Monday, which also happens to be a US holiday. The Germans remain as defiant in their position towards Greece as the Greeks but both sides insist that a Greek exit is not on the table. The quagmire has left investors scratching their heads over probabilities, but if history is to be our guide then some 11th hour solution is likely to be found, which could ultimately prove to be positive not only for the euro, but for the whole global economy.
Euro
Greece brought a four-point plan to the negotiating table, but Germany only wanted the new government to apply for an extension of the old bailout. At the end of the week, talks were expected to continue. Without an agreement or extension of some sort, Greece is expected to potentially default on its debt obligations, thus jeopardising its position in the eurozone by the end of February. All sides are working to avoid such a scenario but there are some who are taking precautions, such as the UK, whose government admitted they are preparing contingency plans for a Greek exit. In the meantime, there was very little economic data released this week to get excited about.
Sterling
Sterling soared to seven-year highs against the euro. The currency was seen supported for two reasons. First, safe haven flows out of Europe and into the UK developed as uncertainties over Greek debt negotiations grew. The second wave of advance for sterling came with the release of the Bank of England’s quarterly inflation report that saw projections for growth rates revised higher this year. At the following press conference, the head of the central bank said that policymakers would look past short-term price developments, attributing falls to lower energy costs. The outlook for rates to move higher is still set for 2016 on the back of improved wage data. The comments and upward revision to the UK growth outlook helped support sterling at the end of the week.
US dollar
The only significant economic data released this week in the US was another set of jobs figures and retail sales. The so-called Jolts figures confirmed the brighter outlook in the employment sector seen last week with the release of non-farm payrolls. The number of job openings rose to levels not seen in 14 years. However, the good news in the jobs market did not translate into consumer spending.