Tumultuous week for euro as greek deadline arrives

Photo:Eisenrah

It has been a tumultuous week for the euro, as the deadline arrives today for Greece's bailout negotiations.

Earlier this week, the country's public sector entities transferred unused cash reserves to the Greek central bank to help meet financial targets. The measure followed a long series of ongoing talks between the European Commission, Greece and other nations. Today's Eurogroup meeting in Riga has been heralded as a make-or-break deadline in the negotiations, which, if not reached, could see the country run out of money.

The talks have weighed on the single currency, taking the pound to a recent seven-year high against the euro, which has been good news for British investors looking for affordable European property.

New signs that Greece has made tentative progress, though, has boosted a broad rally in the euro. Greek Prime Minister Alexis Tsipras has said he was optimistic about reaching an agreement, while the single currency has climbed against both the yen and the US dollar.

The currency rose from last week's low of $1.0666 to $1.0822 this week, according to Reuters, boosted by German Chancellor Angela Merkel's insistence that everything should be done to prevent Greece's coffers going empty.

The greenback, meanwhile, has suffered thanks to an 11.4 per cent dip in new home sales in March, according to new figures. The slip marked the biggest decrease since July 2013, despite arriving on the back of three months of sizeable growth.

Positive figures from a German business statement helped to bolster the euro's relative upswing. The pound, too, weakened against the single currency, as uncertainty surrounds both the UK general election in May and an apparent lack of expected inflation.

"Despite economic theory and the Bank [of England]'s models indicating that prices and wages should be about to increase, the latest inflation figures show an almost complete lack of upwards price pressure, and not just in food and fuel," Ranko Berich, head of market analysis at Monex Europe, told IB Times.

"In these circumstances, the BoE has no option but to wait and see. There is sufficient uncertainty around estimates of slack in the UK economy to justify cautious monetary policy in the immediate future. Should wages show the improvement that the Bank expects, this may all Change, but in the meantime, the Bank's policy can only be extreme caution."

"In the medium term, we think the euro's downtrend is in tact," a currency strategist at Nomura told Reuters. "The euro zone's recovery is not anywhere lose to the growth we are seeing in the United States."

Speaking at the Eurogroup press conference today, Eurogroup chief Jeroen Dijsselbloem told the press there were "still wide differences to bridge", despite positive signs. He emphasised that the onus was on Greece to close that gap.

With time finally running out (the bailout expires in June), what will happen to Greece and the euro?

"Emergency liquidity will be given for as long as Greek banks are solvent and have adequate collateral," said Mario Draghi.

Dijsselbloem added that the Eurogroup would need to see progress before another meeting. "We’re not going to lock ourselves up for weeks."

For now, all eyes remain on Greece.