Greece- deal or no deal?

EU leaders are meeting today in an attempt to lay the foundations for a deal to rescue Greece. Lots of speculation already touted this morning…there has been talk of IMF assistance and then IMF involvement without funding. Germany and France are widely expected to shoulder most of the responsibility in supporting Greece. The most recent feedback is that aid for Greece will depend on Athens meeting its deficit reduction targets this year- begs the question- what if they do not? Lots of fence sitting which is still leaning to reduced confidence in the markets and associated strength of the safe haven currencies such as the USD and the YEN. Expect more volatility as more news and feedback filters through.

Sterling is suffering from a hangover today after a little too much of Mervyn King yesterday. The Bank of England governor killed off the rally in sterling by leaving the door open for a further expansion of the QE programme. However it was not all doom and gloom from King who dismissed fears that the UK would lose their AAA credit status. Sterling still softer on market fear and Kings comments in early trade today.

The USD experienced further gains yesterday as Fed chairman Ben Bernanke indicated that discount rates could rise sooner than expected….this is the charge to banks for loans directly from the Fed. This tone was taken as hawkish even though Bernanke reaffirmed that interest rates would remain low for a prolonged period. The Feds tone sharply contrasted that of the Bank of England as the US look towards a withdrawal of liquidity and a rise in cash rates with the potential higher discount rates. This reinforced USD strength especially against sterling.