Beware Greeks bearing bonds

Currencies Direct January 28th 2010 - 2 minute read

The “Greek tragedy” continues with rumours swirling that the Greek` s approached China looking to offload EUR 25 billion of their debt. How the European dream is starting to crumble when on the back of the warning from the ECB that the Greek’s will have to sort out their own finances they look to the East for  a solution.

The euro has again tumbled on the back of this and EUR 1.40 is now the line in the sand. The spread of the 10-year Greek bond yield over benchmark German Bunds also hit a high not seen since Greece adopted the euro in 2001

The US Dollar moved higher yesterday evening after the Fed’s monetary policy meeting ended. As expected, the central bank left interest rates on hold at the historically low range of 0 – 0.25%, and has been worded in previous statements indicated that it will continue to do so for an “extended period”. However, it was noted that one member of the committee, Thomas Hoening, voted to eliminate the extended period phrase. It also confirmed the continued plan to unwind its support to financial and credit markets. Also of note was its presentation of a brighter economic outlook for the economy than highlighted in its previous statement in December.

Sterling also rose against the euro yesterday after comments on inflation by a Bank of England policymaker spurred speculation that the central bank may end quantitative easing next week. BoE policy board member Andrew Sentance said it may be difficult to keep inflation on target if import and services prices keep rising. Low price risks have enabled the central bank to keep interest rates at a record low 0.5 percent as it pumps the economy with stimulus measures. He added that the economy, which on Tuesday was shown to have just barely made it out of recession in the fourth quarter, was facing opposing pressures which the central bank would have to consider in its Inflation Report next month. The market took the comments to suggest an imminent end to the BoE’s 200 billion pound asset-buying plan, but analysts said they did little to change the view that interest rate rises will not follow until the second half of the year at the earliest. It does look like we will see another attempt to move above EUR 1.1750 the key level of support that broke back in December 2008

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