Greek Bailout - Just a shot of botox into the European Economy

Tom Tong22/Feb/2012Currency Updates

GBP

Yesterday the Public Sector Net Borrowing data was released. Britain posted the biggest budget surplus in four years, increasing pressure on George Osbourne to provide some stimulus for the economy in his budget next month. Revenue exceeded spending by £7.75 billion, well above the £5.2 billion recorded last year.

Moody’s Investors Service said last week that the U.K.’s AAA rating was at one in three chance of down grade due partially to the UK’s high debt, lower growth prospects and potential impact from the crisis in Europe, the government’s commitment to deficit reduction has secured the UK’s top grade. Osborne is refusing to bow to pressure from opposition politicians to relax his fiscal squeeze to promote growth when he presents his annual budget on March 21.

Sterling dipped against the safe-haven Dollar on Tuesday as initial positive sentiment towards a Greek bailout deal waned, while a fragile economic outlook for the UK kept investors wary of buying the pound. Sterling underperformed the Euro, falling 0.5 per cent against the single currency

EUR

Greece sealed its €130 billion bailout to avoid a catastrophic default. This saw the 17-nation currency strengthen, albeit temporarily.

This positive outlook for the Euro is dampened by comments from the Iranian Oil Minister that European countries that have not clarified their position on oil imports from Iran may face an embargo.

Iran said on Sunday it had stopped selling crude to British and French companies, after saying on February 4 that the Islamic state would cut its oil exports to some European countries.

The European Union in January decided to stop importing crude from Iran from July over its disputed nuclear programme. The effect on France and Britain is insignificant, however it is now seen as a political weapon as Greece imports a third of its oil from Iran, 100,000 barrels a day.

USD

The Dollar weakened against the Euro at the start of trading, after the Greek bailout was finally agreed. The single currency was flat against the Dollar at the end of trading.

The big risk-on advance some traders had expected following a Greek debt swap and new bailout deal has been replaced by profit-taking on risk trades, as cautious investors take refuge in the safety of the U.S. Dollar. At the closing bell in New York, the Dow Jones Industrial Average has closed up 16 points or 0.12% at 12,966, the highest levels since May 2008 before the financial crisis. The price of gold rose to a two week high to $1,756 an ounce. Brent oil remains over $120 a barrel.

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Written by Tom Tong

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