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Euro weakens as Greece mulls counter-proposals so close to 11th hour

EUR

The euro fell on Thursday as another round of Greek cash-for-reform talks ended with no deal.

Creditor institutions and the euro-group blamed Syriza for the continued impasse saying that the Greeks would not budge on anything.

Although creditors were reported to have made concessions to various Greek demands, the gaps remained too wide to bridge. It appears the latest set of proposals made by institutions make various concessions to Greek demands to protect Pensions and some goods and services from taxation; they have been described as a final attempt at a compromise, with the ball now in ‘Greece’s court’ for an answer over the weekend. The deadline for a 1.6bn IMF payment is on Tuesday 30, with some saying a deal needs to be agreed over the weekend to avoid a default.

The new proposals put forward by creditors include moving the retirement age to 67 by 2022 – three years sooner than Tsipras’s offer of 2025. They make a concession to maintaining the solidarity grant top up bonus to poorer pensioners until 2019, which is later than the 2017 creditors had previously wanted, but still a year sooner than the 2020 prefered by the Greek government. Pensioners healthcare contribution would go up to 6% from 4% currently.

The new proposals also include compromises on reform of VAT. Previously creditors had wanted a simplified two-tier system but now they would go along with Greek demands for a three tier system with some categories of goods taxed at the lowest rate of only 6%. Creditors have incorporated demands for electricity and basic foods to go in the middle band but not for processed foods – which Syriza wants in the middle – and restaurants which are in the upper 23% band.

In new proposals Greek Islands would not get an exemption from VAT, a major concern of Syriza’s coalition party, the Independent Greeks. The Greek idea for a one off 12% levy on large businesses profits was also thrown out. The idea to raise corporation tax to 29% was watered down to 28%, whilst the idea for luxury yacht tax remained in.

The next meeting is scheduled for Saturday.

On the data front Euro-zone Consumer Confidence in July fell a basis point to 10.1.

USD

The dollar weakened marginally against a basket of currencies on Thursday possibly due to slightly lacklustre employment data which showed an increase in Jobless claims, whilst there may have also been some downside drift due to lack of participation as trader’s stood aside waiting for a resolution on Greece.

On the data front Initial Jobless Claims (June 13) rose to 271k from 268k previously, although this was less than the 273k expected. Continuing Claims (June 20) also rose to 2247k from 2225k – confounding expectations of a fall to 2218k.

Personal Consumption Expenditure in May moderated to 1.2% from 1.3% a year ago. This was in line with analyst’s forecasts.

Personal Spending rose to a higher-than-expected 0.9% – its fastest increase for almost 6 years – from 0.1% previously when it had been expected to increase to 0.7%. Personal Income rose 0.5%, in line with estimates.

Services PMI, which had been expected to rise to 56.5 in June, from 56.2, actually ended up falling to 54.8 instead.

GBP

The pound rose overall on Thursday, although a lack of data meant that it was more susceptible to news impacting on other currencies than its own drivers.

The main hard data release was CBI Reported Sales, which fell to 29 in June from 51 previously, undershooting the 35 expected. This failed, however, to have a negative impact on sterling.

The pound remains supported by recent employment data which has shown average earnings rising by a higher-than-expected rate and a generally optimistic outlook for the economy.

Other news focused on David Cameron’s attempts to renegotiate Britain’s relationship with Europe in Brussels, however, he had to back-track from urging for treaty change in a summit on Thursday as leader’s focused on the more urgent task of dealing with the Greek financial crisis and the Mediterranean migrant emergency.

It is now expected that he will have to go into an in-out referendum without the treaty changes he originally wanted in Britain’s favour, however, it is still possible he may be able to get promises on key reforms instead.

JPY

The yen reversed Wednesday’s decline amidst chatter that the pair may be overvalued in the short term, and that the BOJ is uncomfortable with the yen’s weakness despite Governor Kuroda’s denials, which further spawned rumours that investors are nervous about the USD/JPY pairing.

Economists feel that should Greece default the safe haven status of the pairing will come into play with dollar strength outweighing any moves towards the yen.

In economic news, the small business confidence index in Japan unexpectedly dropped to a level of 46.9 in June, from the previous month’s reading of 48.1. Markets were expecting it to advance to a level of 48.3.

Going forward investors will focus on a data-dump’ of Japan’s national CPI and unemployment data scheduled overnight.

Today the yen strengthened and was trading at 123.52 late in the New York session.

EUR

The euro fell on Thursday as another round of Greek cash-for-reform talks ended with no deal.

Creditor institutions and the euro-group blamed Syriza for the continued impasse saying that the Greeks would not budge on anything.

Although creditors were reported to have made concessions to various Greek demands, the gaps remained too wide to bridge. It appears the latest set of proposals made by institutions make various concessions to Greek demands to protect Pensions and some goods and services from taxation; they have been described as a final attempt at a compromise, with the ball now in ‘Greece’s court’ for an answer over the weekend. The deadline for a 1.6bn IMF payment is on Tuesday 30, with some saying a deal needs to be agreed over the weekend to avoid a default.

The new proposals put forward by creditors include moving the retirement age to 67 by 2022 – three years sooner than Tsipras’s offer of 2025. They make a concession to maintaining the solidarity grant top up bonus to poorer pensioners until 2019, which is later than the 2017 creditors had previously wanted, but still a year sooner than the 2020 prefered by the Greek government. Pensioners healthcare contribution would go up to 6% from 4% currently.

The new proposals also include compromises on reform of VAT. Previously creditors had wanted a simplified two-tier system but now they would go along with Greek demands for a three tier system with some categories of goods taxed at the lowest rate of only 6%. Creditors have incorporated demands for electricity and basic foods to go in the middle band but not for processed foods – which Syriza wants in the middle – and restaurants which are in the upper 23% band.

In new proposals Greek Islands would not get an exemption from VAT, a major concern of Syriza’s coalition party, the Independent Greeks. The Greek idea for a one off 12% levy on large businesses profits was also thrown out. The idea to raise corporation tax to 29% was watered down to 28%, whilst the idea for luxury yacht tax remained in.

The next meeting is scheduled for Saturday.

On the data front Euro-zone Consumer Confidence in July fell a basis point to 10.1.

USD

The dollar weakened marginally against a basket of currencies on Thursday possibly due to slightly lacklustre employment data which showed an increase in Jobless claims, whilst there may have also been some downside drift due to lack of participation as trader’s stood aside waiting for a resolution on Greece.

On the data front Initial Jobless Claims (June 13) rose to 271k from 268k previously, although this was less than the 273k expected. Continuing Claims (June 20) also rose to 2247k from 2225k – confounding expectations of a fall to 2218k.

Personal Consumption Expenditure in May moderated to 1.2% from 1.3% a year ago. This was in line with analyst’s forecasts.

Personal Spending rose to a higher-than-expected 0.9% – its fastest increase for almost 6 years – from 0.1% previously when it had been expected to increase to 0.7%. Personal Income rose 0.5%, in line with estimates.

Services PMI, which had been expected to rise to 56.5 in June, from 56.2, actually ended up falling to 54.8 instead.

GBP

The pound rose overall on Thursday, although a lack of data meant that it was more susceptible to news impacting on other currencies than its own drivers.

The main hard data release was CBI Reported Sales, which fell to 29 in June from 51 previously, undershooting the 35 expected. This failed, however, to have a negative impact on sterling.

The pound remains supported by recent employment data which has shown average earnings rising by a higher-than-expected rate and a generally optimistic outlook for the economy.

Other news focused on David Cameron’s attempts to renegotiate Britain’s relationship with Europe in Brussels, however, he had to back-track from urging for treaty change in a summit on Thursday as leader’s focused on the more urgent task of dealing with the Greek financial crisis and the Mediterranean migrant emergency.

It is now expected that he will have to go into an in-out referendum without the treaty changes he originally wanted in Britain’s favour, however, it is still possible he may be able to get promises on key reforms instead.

JPY

The yen reversed Wednesday’s decline amidst chatter that the pair may be overvalued in the short term, and that the BOJ is uncomfortable with the yen’s weakness despite Governor Kuroda’s denials, which further spawned rumours that investors are nervous about the USD/JPY pairing.

Economists feel that should Greece default the safe haven status of the pairing will come into play with dollar strength outweighing any moves towards the yen.

In economic news, the small business confidence index in Japan unexpectedly dropped to a level of 46.9 in June, from the previous month’s reading of 48.1. Markets were expecting it to advance to a level of 48.3.

Going forward investors will focus on a data-dump’ of Japan’s national CPI and unemployment data scheduled overnight.

Today the yen strengthened and was trading at 123.52 late in the New York session.



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