A quiet start to the trading week saw little movement in the main currency pairs.
UK economic data continues to be poor. Yesterday saw the publication of the Markit/CIPS Construction Purchasing Managers’ Index for June at 53.6 points, below the previous month´s reading of 54.0. The main reason for the retreat was the slowdown seen in the new business sub-index, to its lowest level since January, while employment retreated at its fastest pace since that same month and as confidence, “weakened sharply in June from May’s twelve-month high to the lowest since last December.”
The euro again took centre stage on world currency markets. It was virtually unchanged against the dollar and yen. There are, however serious concerns over the status of the euro following an announcement by credit ratings agency, Standard and Poor’s (S&P).
S&P warned that the voluntary rollover proposed by the French government and accepted by banks for 70% of Greek debt could be considered a “selective default.” Thus, the rating agency affirms that the decision “will result in investors receiving less value than that promised by the original securities.” S&P adds that “the two financing options outlined in the FBF (Federation Bancaire Francaise) proposal would likely amount to a default under our criteria.”
As things currently stand this could be extremely problematic given that the European Central Bank (ECB) has indicated, on repeated occasions, that in such a scenario it would stop accepting Greek debt as collateral at its auctions, cutting off funding for Greek banks in the process.
No less important, it is not completely clear if the French proposals would trigger CDS contracts.
Interestingly, however, S&P states that, “But, once either option is implemented, we would assign a new issuer credit rating to Greece after a short time reflecting our forward-looking view of Greece’s sovereign credit risk.”
For his part, Eurogroup president, Jean-Claude Juncker, has commented this morning that the international measures for the financial rescue would mean that Greece cedes part of its sovereignty. “The sovereignty of Greece will be massively limited,” said Juncker in an interview with the German weekly Focus.
S&P’s comments halted the risk rally which took off on Thursday last week after the Greek parliament approved the latest round of austerity measures thus qualifying for the latest instalment of the €110 billion rescue package announced in May 2010.
Meanwhile, down under the Royal Bank of Australia held interest rates unchanged for at least another month at 4.75% citing concerns about a slowdown in the Australian economy took the edge off inflationary concerns.
Commentary by Tony Redondo
“Any opinions expressed in this document are those of TorFX analysts. Any analysis and/or forecasts provided are aimed at helping clients understand market conditions and developing trends. Clients are wholly responsible for their own trading decisions.”
