On Friday US Non-farm payrolls increased by an unexpected 243,000 which subsequently brought down US Unemployment from 8.5% to 8.3%. The US Dollar shares an odd relationship with the US economy because the buck does not necessarily benefit from strong economic releases. The US Dollar draws in large sums of money from risk-averse traders looking for a safe haven for their funds. However, when the US economy fares well it is often seen as an indicator that the global economy is improving and as such many investors prefer to place their funds in higher yielding currencies, (such as the South African Rand, New Zealand Dollar or Australian Dollar) as the safety net that is provided by the ever-steady US Dollar is no longer needed. Through this twisted logic the US Dollar often weakens on the back of strong ecostats; Fridays employment figures had initially triggered a fundamentalist US Dollar rally, but by the end of the session, the world reserve currency’s own strength had come back to bite itself in the bum and the Pound to US Dollar Exchange Rate returned to the same rate as before the announcement.
Both the Pound and the US Dollar are gaining strength this morning against the Euro Exchange Rate as markets await the fabled ‘Greek Debt Talk Resolution’ that was initially scheduled to be released at 10:00 GMT this morning. As of 11:43 GMT the Pound to Euro Exchange Rate is 1.206 and the Pound to US Dollar Exchange Rate is 1.576. The Pound is benefitting from minor safe haven flows, but the majority of funds being transferred in fear are headed across the Atlantic to the US Dollar.
Greece is looking to secure €130 billion of aid from the European Union in order to stay afloat, but the deal hinges on their ability to agree a debt restructuring agreement with their private investors and to pass a series of strict austerity measures in order to reduce their mammoth budget deficit.
Lucas Papdemos was brought in to head a technocratic government in Greece, with the sole purpose of sorting out the debt deal as a means to keep Greece within the Eurozone. The former IMF man has faced tough opposition from the people of Greece and his fellow politicians.
Girogos Karatzaferis (of the populist Laos Party, 1 of the 3 parties backing Papademos’ National Unity Government) has refused outright to endorse the spending cuts and tax rises: “I’m not going to contribute to the explosion of a revolution [by supporting] a wretchedness that will then spread across Europe.” Antonis Samaras (of the conservative New Democracy Party) said: “They are asking for more recession than the country can take… I am fighting against them.”
This new bout of complications, in the form of political unrest, has caused the Eurogroup to go back on their word and retract the scheduled deadline. What was thought to be announced at 10:00 GMT this morning, and then at 16:00 GMT this afternoon has now been postponed to a vague: when they “have all the elements sorted,” according to the German finance minister. The resolution is currently pencilled in for anytime ‘before the next Eurogroup meeting’ of the Eurozone’s finance ministers.
The next Eurogroup meeting was scheduled for 16:00 GMT today, but this gathering seems to have been cancelled over the weekend. The next Eurogroup meeting – Greece’s deadline for reaching political agreement – is set for whenever Greece can reach a political agreement. Effectively, Greece now has no deadline and investors have once more been left in the dark by finance ministers moving the goalposts just as markets were aiming to strike.
The threat of a disorderly Greek default is weighing heavily over the Euro Exchange Rate; the longer that a resolution is not met in Athens the weaker the single currency is likely to become.