After claiming an agreement was imminent, sounds coming from the Greek government over the weekend show that was clearly never the case. Prime Minister Tsipras has described the requests made by the bailout monitors as ‘absurd’ and seems to be willing to further politicise the negotiations by characterising some of the requirements as ‘harsh punishment’. The situation looks bleak indeed. This week, Greece will have to pay roughly €300m back to the IMF, and bearing in mind that the last payment to the IMF was made by drawing down on Greek funds at the IMF, it’s hard to see how this can be done without assistance from creditors. Still, 5th June, the payment date, is not seen as a particularly significant risk event as the consequences of missing payment are not considered significant. It is worth noting, however, that the month of June is riddled with repayment dates and meetings, and repayment dates and meeting… oh dear! All in all Greek liabilities over this period are far in excess of €1bn. If this is a game of brinkmanship, someone will have to back off in the next few weeks.
The dollar rally was slowed somewhat on Friday, with rather disappointing US data. Real consumer spending was slightly less than forecast in Q1, and weaker than the last quarter of 2014. On the other hand the GDP outcome was marginally better than forecast. The weak consumer data was also mitigated by good Michigan sentiment and expectations data, however it was clear that traders were predisposed to manage their risk into a weekend, hence the stall in dollar appreciation. We are already seeing renewed signs of dollar strength in this European morning. It really looks like the greenback wants to rally, and the unfolding Greek tragedy certainly supports the cause. In a short while, we’ll get a host of manufacturing PMI from European economies which should be a welcome addition to the macro debate and later on we will get data for one of the US Federal Reserve’s favourite inflation indicators, as well as another measure of consumer activity in the United States. Please be aware that a number of US monetary policymakers will make speeches later on today as well. As we are now in a period where normalisation is imminent, we would be best advised to carefully monitor Federal Reserve board member speeches. Any additional information about when interest rates will rise in the US will be carefully managed, and these speeches are often used to frame the issue for market participants.
We continue to look for dollar strength in the weeks ahead. It is already evident in the weakness of emerging currencies, combined with what we are observing amongst the majors. We believe that it’s set to get stronger. Watch this space!
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