Market prices in Greek yes vote

Currencies Direct June 29th 2011 - 2 minute read

The market has made its move and has priced in a positive resolution for today’s crucial Greek vote on austerity due at 12:00 GMT. Risky assets and the euro have been subsequently bought back into and EUR/USD has pushed back up from 1.41 to 1.44 on the prospect of a yes vote. The market is clearly in a situation of buying the rumour and a sell of the fact could be on the cards – the yes vote is not a foregone conclusion as the socialist ruling party only have a tiny majority of six in 300 seat parliament. It is knife edge time for Greece and the Euro.

Even in the light of today’s critical vote it is the pound and not the euro which looks as though it has been through 12 rounds. The beleaguered pound has fallen 8.9% in the last year and covets the accolade of second worst performing currency among 10 developed market currencies behind the USD according to Bloomberg.

So why is the pound so weak? Well in a nutshell we have recently seen GDP dip further against forecasts, mortgage approvals are set to remain near a 4 month low in May (data due at 9:30) and interest rates are set to remain low. However the nail in the coffin is the retail sector which is struggling and consumer confidence is waning fast- the Asda CFO summed it up well today in the Telegraph stating that British consumers are starting to ration as fear and uncertainty grips consumers. This certainly challenges the government’s austerity plans- if this mood prevails, plan A will certainly fail as growth will be hamstrung by a lack of consumer appetite and with no plan B the UK could be in for a rough ride.

Commodity currencies have fared well on the bounce into risk and also due to the appetite creating a thirst for yield- in particular the AUD and the NZD have remained firm. Today all eyes will be on Greece and we do not have too much else on the table in relation to economic numbers. We have seen jumpy markets already this morning with GBP/USD dipping 40 pips and then recovering- today will be volatile.

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