Euro lifted as Greek government votes in austerity package

Tom Tong30/Jun/2011Currency Updates

Overview:

Yesterday’s main theme was short-term euro strength as Trichet’s rhetoric focused on ‘strong vigilance’, and Greek sovereign debt default fears have been eased for the time being.

GBP

Sterling remained relatively range bound against the euro yesterday despite it being boosted by Trichet’s ‘strong vigilance’ language in his current speeches and the Greek austerity vote coming in favour of supporting the newly-agreed bailout package. Overall, after the overnight trading session sterling will open down 0.5% against the euro. Against the dollar, sterling also managed to gain around 0.5% by the close of business in the UK and will open up a further 0.4% higher as overnight trading has weakened the dollar further. There were no real significant surprises with yesterday’s data as mortgage approvals, private lending and service sector data all came in as expected. There is no headline UK data due out today, leaving sterling very much at the hands of the other majors.

EUR

The euro reacted positively to both this week’s Eurozone approved bailout package for Greece being accepted, and the Greek parliament voting to accept the accompanying austerity measures. Further boosts to current euro sentiment has been given by Trichet using the ‘strong vigilance’ language continually this week. This goes hand-in-hand with ECB rate hikes historically, with the market reacting accordingly. This view is further supported by June’s Eurozone inflation rising to 2.8%. Given the current flat stance of the Federal Reserve and the Monetary Policy Committee, this can only support the euro against sterling and the dollar. After the overnight session the euro closed up 0.4% against the pound and up by 1.1% against the dollar.

The main data focus for the Eurozone will be on German unemployment data at 08:55, and on the Eurozone flash CPI reading at 10:00. The market is expecting a marginal dip in German employment figures and for the flash reading to reinforce that Eurozone inflation is at 2.8%.

USD

Dollar sentiment has remained very flat at the moment, reflected by the dollar index (a measure of performance against a basket of 16 currencies), approaching a quarterly loss as well as dropping for a fourth consecutive day yesterday closing down by 0.5% at 74.29. The short term boost to euro sentiment means that the dollar will open down by 1.1% against the euro this morning, as well as 0.5% down against sterling.

The main data focus will be on the US unemployment claims at 13:30, which is expected to show a figure of 419k. And then at 15:00 the Chicago Purchasing Manager’s Index is expected to be down at 54.1.

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Written by Tom Tong

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