Another Day Another GBP/EUR High

Generally one would consider talk of exit strategies and bank takeovers to be the makings of a good James Bond movie, but yesterday it was the deeply rooted reality within the Eurozone. Tensions are at an all time high as the Greek stand-off intensified through the course the day. Talk of a Greek exit really gathered momentum and almost saw the ECB withhold its proposed 5.2 billion bailout package to Athens.

A mid-afternoon market wobble ensued which saw GBPEUR hit 1.2460, levels previously unseen since Oct 2008. European Equities fell and flighty investors flocked into UK and German treasuries. Fearful of widespread panic the German Finance minister was quick to take control reminding the Greeks they cannot have their cake and eat. If they want to stay in the Euro they have to play by the rules.

Political negotiations broke down as Alexis Tsipras failed to rally any anti-bailout support. The mandate now passes to the socialist PASOK party. While it seems likely that Greece will return to the polls, perhaps the recent radical exit plans of the leftist Syriza party may coerce a more right-centre cooperative to emerge. The lesser of two evils perhaps…

Albeit somewhat eclipsed by the events in Greece, Spain was making a racket of its own. The Spanish government nationalised Bankia bank. 4.5bn in loans which had been previously given by the government were turned into shares. The government now has a 45% controlling stake. The IBEX was down 2.77% to a nine year low, yields were up above the 6% mark once again, and estimates for the 30 odd billion Bankia bailout (due to be announced on Friday) were being coined as the ‘tip of the iceberg’ for the Spanish banking bailout.

During the Irish Banking Crisis, we saw the formation of a ‘bad bank’ used to absorb the problem assets from all the respective banks, alleviating the exposure from their balance sheets. This could be a viable option for Spain as it would be a step on the road to de-leveraging and meeting deficit targets.

EURUSD spent the day below its new 1.30 resistance level. Positive trade and jobless claims figures due today could see it drop off further into the low 1.29’s.

The midnight Asian session saw GBPEUR hit 1.2492 as data from China and Australia was released. Australian unemployment reduced to below 5% and we saw AUD climb. Chinese trade saw a better than expected surplus 18.4bn vs 9.8bn expected.

Industrial and Manufacturing data for the UK are out this morning. The BoE meeting will inevitably leave interest rates alone and postpone further QE for the time being.

Latest exchange rates at time of writing