The spectre of the Greek bailout crisis simply refuses to die, but poor government borrowing figures from the UK have today pushed the Pound down -0.2% to 1.1545.
A continued deadlock over the latest tranche of Greek bailout funding has failed to overshadow the news that the UK government borrowed even more money than forecast at the start of the new financial year.
In order to shore up public finances, the Chancellor borrowed -£9.7 billion; exceeding forecasts by -£1.5 billion.
Even though March’s deficit was revised lower to -£2.3 billion from -£4.4 billion, investors are more focussed on the latest figures and what they suggest about the public purse.
The Euro is supported by a run of strong Markit PMIs, with the manufacturing, services and composite indices for France, Germany and the Eurozone largely advancing above forecast.
‘Business activity is expanding at its fastest rate for six years so far in the second quarter, consistent with 0.6- 0.7% GDP growth,’ explains IHS Markit Chief Business Economist Chris Williamson. ‘The consensus forecast of 0.4% second quarter growth could well prove overly pessimistic if the PMI holds its elevated level in June.’
Only the French manufacturing and German and Eurozone services PMIs weakened, but the decline was marginal and all three indices remain on a strong footing regardless.
But there could be clouds on the horizon for the common currency that may help the Pound to recover from its current eight-week low.
The next tranche of Greek bailout funding remains in deadlock, despite the Greek parliament last week approving fresh austerity measures in order to appease the nation’s creditors.
Despite a meeting that lasted until almost midnight on Tuesday, Eurogroup was unable to agree on the issue of debt relief, which would reduce the interest payable on Greece’s debt over the coming decades.
According to Dutch Finance Minister and Eurogroup President Jeroen Dijsselbloem, ‘We were very close and we were just unable to manage it tonight.’
The issue has been one that has dogged the debate for months now, with the IMF demanding more debt relief than either Eurogroup or Greece wants, while certain members of Eurogroup – such as Germany’s Wolfgang Schäuble – are firmly against any form of debt reduction at all.
The issue has now been delayed until the next Eurogroup meeting on June 15th – perilously close to when Greece desperately needs the next €7.5 billion tranche of its bailout funding, as it has debt maturing in July.
If it defaults on its payments, there is a possibility that Greece may crash out of the Eurozone.
This uncertainty continues to hang over the Euro and could therefore undermine recent strength in the common currency heightened by the latest PMI releases.
Investors may therefore consider the Pound to be the more stable of the two currencies, even with the general election and uncertainty surrounding Bank of England monetary policy to weigh on Sterling.
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