It was Greece’s call for a referendum, and then the outcome, that increased the risk of a Greek exit from the monetary union. Many now assume that a Greek exit is the most likely scenario.
We suspect that many misunderstand the incentive structure, and under-estimate the political will to ensure EMU remains irreversible. We argue that there a no pleasant choices left for both creditors and Greek people.
Remember the Fawlty Towers episode in which a slice of veal that may or may not have been coated with rat poison is rescued from the kitchen floor and prepared for the plate of a visiting health inspector? “What the eye don’t see,” chirps Basil’s ever-insouciant cook, while casually dusting down the offending cutlet, “the chef gets away with.”
The US dollar closed higher against all the major currencies during the holiday-shortened week. The lack of liquidity may have exaggerated the weakness of Swedish krona and Norwegian krone, the poorest performing major currencies. Both lost about 1.5% against the greenback.
The least weak currencies were in the dollar-bloc. The Canadian and New Zealand dollars were practically flat, and the Australian dollar slipped 0.2%. The euro and sterling slipped about 0.5%, while the yen shed 0.7% of its recent gains.
The US dollar’s gains scored yesterday in the wake of a strong upward revision in Q3 GDP to 5% pared slightly today in extremely thin market conditions. The euro sold to a new 28-month low (~$1.2165) yesterday and is struggling to re-establish a foothold above $1.22.
The US dollar is narrowly mixed. The euro is pinned in a quarter cent range above $1.2220. The dollar is higher against the yen for the fifth consecutive session. It may be the first session since December 8 where the dollar spent the entire session above JPY120.
The Australian dollar and sterling are the weakest of the majors. The former weighed down by rising expectations for 1 to 2 rate cuts next year. Falling commodity prices also said to take toll. It recorded new four-year lows below $0.8100, but has recovered to little changed levels in the European morning.
A steep fall in stocks reversed late last week as investors bet on a new round of money printing from the Federal Reserve.
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