Monthly Archives: March 2012

Where next for GBP/EUR rates / Greek debt swap deal reaches pivotal point / Further QE in the UK?

GBP/EUR rates have been hovering just below 1.20, as markets wait for confirmation that Thursday’s deadline for the Greek debt swap with its private creditors will be met without any further surprises. This debt swap will enable Greece to immediately wipe over 100 billion Euros off its national debt and is essential if the country realistically wants to remain part of the eurozone and its single currency. If this deal goes through we could well see some initial Euro strength, although I do not feel it will be enough to push rates much below 1.19.

It has been estimated that a Greek default could cost the Eurozone 1 trillion Euro’s, a startling figure considering the current levels
of debt the region holds. Contagion from Greece would threaten some of Europe’s largest economies, including Italy and Spain as further, potentially unobtainable bailout packages would be required. Therefore, if there is any delay in this agreement I think the markets will panic and we could well see levels push through the 1.20 resistance barrier and settle around the 1.21 mark.

In the UK the British Chamber of Commerce has predicted that the UK will avoid recession and the BoE (Bank of England) will not need to continue its QE (Quantitative Easing) programme. Even though growth forecasts for 2012 have been cut, we could certainly see some Sterling strength off the back of this report if indeed it turns out to hold some truth.

If we were to couple the two scenarios, whereby Greece do agree terms with their private creditors as well as the BoE confirming there will be no further QE in the short-term, then I believe we will see levels remain in the 1.20 region.

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