Dollar Mixed as Investors Await Greek Referendum

30 Jun 2015 | Author: | No comments yet »

Delamaide: Greek fallout political, not financial.

Dubai: Greek businesses operating in the UAE said the failure of Greece and its creditors to reach an agreement which led to the introduction of capital controls on Monday and the country missing the deadline on $1.6 billion debt repayment to the International Monetary Fund (IMF) has not had any major impact on their businesses. – – The euro pulled away from session lows against the dollar on Tuesday amid media reports that attempts were underway to reach a last minute deal to avert a default by Greece later in the day.WASHINGTON — If financial markets are the best place to gauge what’s happening in Greece, the worldwide fiscal picture may not be so bleak after all. While some said, bank shutdowns have caused some inconvenience in making and receiving payments, they believed it will be temporary irrespective of the fact whether Greece remained part of the EU and the euro, after the July 5 national referendum. “We are hopeful that Greece will reach a deal with the creditors and will remain part of the European Union and the single currency. There was some selling of stocks around the world, but the euro itself was stable in currency markets and the main index of financial volatility, Vix, was much tamer Monday than it had been in some acute earlier phases of the crisis.

While Greece was set to default on a 1.6 billion euro loan from the IMF, traders who had bet against or “shorted” the euro continued to repurchase the currency after it rallied on Monday from a four-week low $1.09550 to a nearly one-week high of $1.12790. The focus was also on how popular opinion takes shape in Greece before it holds a referendum Sunday to vote on whether the terms set by creditors for a bailout were acceptable.

The euro remains poised for a monthly and quarterly gains, proving remarkably resilient in the face of a possible Greek exit from the currency bloc. “We’re in limbo,” Alan Ruskin, global head of Group of 10 foreign exchange at Deutsche Bank AG in New York, said by phone. “Presuming the referendum goes ahead as planned, the market is waiting to see whether it’s a yes or no. Greece shut down its banking system on Monday, with lenders ordered to stay closed for six days, following a decision by the ECB not to extend a lifeline of emergency funding. Greece broke off negotiations with creditors on Saturday and in a surprise move Prime Minister Alexis Tsipras called for a snap referendum to be held on July 5 on whether to accept the terms proposed by lenders for extending the country’s bailout. I think the EU, the IMF and ECB should look at a pro-growth solution to the current crisis instead imposing unilateral unsustainable austerity measures on Greece,” he said. The dollar benefited, meanwhile, from month- and quarter-end flows, which stem from global fund managers and investors rebalancing their currency exposure based on stock and bond market movements over the month or the quarter.

A Johnny-come-lately to what was then called the European Economic Community, Britain has been a skeptical fellow traveler all along, opting out of the joint currency and now seeking a “renegotiation” of its membership before voting in 2017 whether to exit the EU altogether. That remorseless logic of integration is one of the reasons we didn’t join the euro and we don’t want to in the future.” There is still a tendency to dismiss political dissatisfaction with the EU’s economic orthodoxy as a fringe phenomenon, even though the far-left parties like Podemos in Spain and the Five Star Movement in Italy, and far-right parties like the National Front in France now have the support of one quarter to one-third of national voters. But if the traditional mainstream parties in these countries hope to remain viable, they will have to acknowledge the legitimate skepticism of voters who support these parties.

Where it is today is more a reflection of some month-end and quarter-end flows.” That’s leaving many investors looking to European Central Bank President Mario Draghi, who pledged in 2012 to “do whatever it takes” to defend the euro. Return to the drachma will lead to substantial devaluation the currency which will come with some amount of hardships in the immediate future, But I believe Greece will become more competitive in its key sectors such as tourism and trade with a weaker currency,” he said. After its recent gains, the euro is also under pressure from monetary-policy divergence as the Federal Reserve moves closer to raising interest rates, said Eric Stein, who manages the Global Macro Absolute Return Fund in Boston at Eaton Vance Corp. Even if there is a Greek referendum vote that accedes to the EU terms, or even if there is some last-minute miracle accord that allows both sides to save face, most of the political damage has been done and cannot be undone.

If the EU were to regress to a free trade zone, with or without a core of countries maintaining a common currency, the economic damage might be minimal. It’s down 1.2 percent from a month earlier. “The dollar’s recent moderation should give the Fed more confidence it can begin the path of slowly hiking interest rates,” Eaton Vance’s Stein said. The current government came to power with the Greek people’s mandate to reject the repressive austerity measures that has been virtually strangulating the Greek economy. This is not tiny little Greece and poor little Portugal, but two of the biggest economies in Europe and essential to any organization wanting to label itself European. Business columnist Darrell Delamaide has reported on business and economics from New York, Paris, Berlin and Washington for Dow Jones news service, Barron’s, Institutional Investor and Bloomberg News service, among others.

I expect to see a domino effect following the Greek exit with more nations opting out to the common currency to escape the ill effects a strong currency,” said Kallidis.

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