Lagarde: IMF Decision on Greek Bailout Could Take Until Q2
Christine Lagarde, managing Director of the International Monetary Fund (IMF), has warned that it could take until Q2 before her organisation makes a decision on the third Greek bailout. The IMF was a creditor in the first two rescue deals, but has so far remained in an advisory role for the latest bailout. Greek Prime Minister Alexis Tsipras had previously dismissed the possibility of IMF intervention, claiming it wasn’t needed, although Pierre Moscovici, the European Commissioner for Economic Affairs, warned Tsipras ‘not to play games with the IMF’.
Despite this the Euro is performing bullishly today.
Yesterday…
Spike in Number of UK Firms in ‘Significant’ Financial Distress
As if the news from the final quarter of 2015 hadn’t been dire enough for the UK, new research shows that there was a dramatic spike in the number of UK firms who suffered serious financial difficulty towards the end of the year. Restructuring specialist Begbies Traynor found that 270,000 companies reported that they were in trouble, representing a 17% spike in the number of businesses struggling to operate in current market conditions. As well as a drop in sales, capital or profit, the firms cited spiralling costs or County Court Judgements (CCJs) filed against them.
Pound (GBP) Bolstered by MPC Meeting Hawk
Although the Monetary Policy Committee (MPC) have once again voted to leave interest rates on hold, Pound Sterling has been buoyed by the fact that policymaker Ian McCafferty remained hawkish. Whether or not McCafferty would continue to press for a 0.25% rate hike was seen as an indicator of how fragile the UK economy was perceived to be against a backdrop of global risks.
The Pound has since declined, however, as investors digest the result and face the fact that an interest rate increase could be many months off. Sterling forward contracts have shown that anticipation for the next rate hike has been pushed back one month to February 2017 since the 4th of January, which would mean the Bank of England (BoE) would have left interest rates at record low levels for 94 months.
Earlier…
The German economy grew as expected during 2015, according to Gross Domestic Product figures for the entire year. The news has enabled the Euro (EUR) to extend a bullish lead against Pound Sterling (GBP), which is currently weakened by low demand ahead of today’s Bank of England (BoE) interest rate decision.
Strong German Economic Growth Bolsters EUR/GBP Exchange Rate
Despite a global slowdown, with the International Monetary Fund (IMF) predicting an easing in growth to 3.1% from 3.4% the previous year, German GDP grew at the strongest rate in four years, rising 1.7% in 2015. Despite fears over a slowdown in emerging markets weakening trade, it seems that private consumption, record employment and a higher rate of spending by the state has fuelled growth, which registered 0.1% higher than economist had predicted. The European Central Bank (ECB) is likely to welcome the news and it shows that the economy has responded positively to nearly a year of quantitative easing.
Private consumption in Germany was up 1% on the previous year at 1.9%, while government spending grew 1.1% faster than in 2014, hitting 2.8%. Trade dragged slightly on growth, with net exports rising 5.4% compared to a 5.7% increase in imports.
The EUR/GBP exchange rate is currently trading around 0.7570.
Pound Sterling to Euro (GBP/EUR) Exchange Rate Slumps Ahead of BoE Meeting Minutes
The Bank of England (BoE) will be announcing the result of its latest Monetary Policy Committee (MPC) meeting during today’s London session. It is expected that interest rates will remain at 0.50%, with the Asset Purchase Target also on hold at £375 billion. Traders are still interested in the result, however, as the accompanying minutes from the meeting may help to give an indication of how policymakers intend to act in the future. Ian McCafferty is currently the only member of the committee hawkish enough to have voted in favour of an interest rate rise, so a change in the previous 8-1 split will show whether the MPC is becoming more or less confident in the UK and global economy.
Some good news would be welcomed, after worsening conditions at two of the UK’s major banks continued to hamper Chancellor George Osborne’s plans to offload the remaining public shares. The state currently holds a 9% (£2 billion) share in Lloyds Banking Group, which Osborne had intended to sell for a profit. However, policy dictates that the shares can’t be sold below the break-even price of 73.6p, which is around 7p higher than the current share price after Lloyds had its credit rating downgraded for the second time in five months yesterday. The state has a similar problem with RBS, of which it owns 73%, with a target to sell shares above 300p: RBS shares are currently at around 275p, the lowest level since June 2013.
The GBP/EUR exchange rate is currently trading between 1.3165 and 1.3280.
Euro to Pound Sterling (EUR/GBP) Exchange Rate Forecast: BoE in Focus
Today sees what will likely be the 82nd month that UK interest rates have remained at 0.50% after the MPC announce the outcome of their meeting. Traders will be watching carefully to see if Ian McCafferty remains hawkish: if he were to vote against an interest rate rise it would be the first time in six meetings he has done so. That would likely result in a huge drop in investor confidence and push predictions for a BoE rate hike even further back.
The EUR/GBP exchange rate is currently trading between 0.7528 and 0.7590.