It was no surprise at all that there wasn’t an agreement for Greece from yesterday’s meeting of finance ministers. Neither side can even agree on what is up for negotiation. Germany had taken the calculated risk that Greece has more to lose than they have, so have chosen to hold tight. For their part, they know that giving Greece the negotiating room beyond the Troika will open up the doors to further anti-austerity movements in the eurozone and they fear they will be the ones paying the price. That also amounts to electoral suicide domestically. So if we can say anything about the price action on the single currency over the past 24 hours, it’s that the market is taking the view that Greece is the one that is going to blink first. EURUSD is comfortably above the lows yesterday seen at 1.1280.
Overnight, the Aussie is the main standout from overnight trading, having weakened back down to the 0.7650 level in the wake of the latest employment data. The unemployment rate jumped up to 6.4% (from 6.1%) with full time employment falling by 28k in January. The Aussie is now much closer to the levels prevailing in the wake of the rate cut seen earlier this month and the weaker tone in some way validates the RBA’s precautionary 25bp easing. Going into today’s quarterly Inflation Report, sterling has been relatively resilient above the 1.50 level on cable. The issue for the Bank will be convincing markets that the fall in headline inflation is temporary and the bigger picture still favours recovery and an eventual rate hike.