` High Low High Low
EUR/USD 1.1348 1.1240 USD/ZAR 12.1687 12.0919
GBP/USD 1.5833 1.5764 GBP/ZAR 19.20 19.11
EUR/GBP 0.7181 0.7122 USD/RUB 54.71 52.83
USD/JPY 123.79 123.34 USD/ILS 3.7984 3.7635
GBP/CHF 1.4667 1.4553 S&P 500 2,129 2,119
GBP/AUD 2.0513 2.0405 Oil (Brent) 63.75 63.25

I’ll start with an apology to readers. We were unable to put out a blog yesterday, but never fear, full service is resumed today.


I can imagine laymen everywhere shaking their heads in bewilderment, “Good news in Greece” they say, “but… wait a minute.. the euro is dropping now!?” At first blush it might seem absurd, but there are reasons why a paradigm of Greek crisis resolution should result in a weaker euro:

  • Eurozone QE
  • Relative growth
  • The euro has become a funding currency


Let’s tackle the good news first, and then I can come back to elaborate on the last bullet point. The first two bullets should be fairly intuitive. The Greek government presented concessions to an emergency summit of Eurozone leaders yesterday evening. The concessions in the form of more realistic economic reform proposals will be used as the basis for further discussion this week. No doubt they will have to be fleshed out and there are likely stumbling blocks ahead, but this appears to be the first attempt in quite some time by the Greek side to come up with a compromise. Rather comically the Greek submission was supposed to arrive on Sunday, but the wrong documents were sent. You can’t write this stuff up! Other good news came on the macro front, with solid data coming out of both France and Germany. The latest purchasing managers index data presents a picture of France in particular which is heartening, after all for the last few years France has been one of the sick men of the Eurozone, if we get a decent recovery going there it should boost the chances of the likes of Spain and Italy and even Greece exporting their way out of this ungodly mess.


Back to currencies… as I mentioned earlier, the euro is significantly weaker this morning. One of the reasons I put forward is the fact that the euro could now be a funding currency. When investors have good risk appetite, a typical investment strategy is to borrow in a cheap currency (a funder) and buy more risky higher yielding assets (bonds, equities, real estate etc). This is what we think has happened to the euro, and it is a position in which it has supplanted the US dollar which for a decade was the global funding currency of choice.


Yesterday saw some fairly impressive moves in equity markets in particular as the sounds coming from Eurozone officials in the know, became increasingly positive. Stock markets were up 3 – 4% and Greek banks in particular rocketed higher. This is not the end, but it could well be the beginning of the end. We should remember that if the Greek crisis is resolved the matter that moves to the forefront of our collective mind will be the timing of interest rate hikes in the United States. There is even a potential link between the two events, should the crisis in Europe recede, the risk of global contagion is off the table, and the Federal Reserve will be free to assess the U.S economy purely on its domestic merits. With tightening labour markets and signs of wage growth the central bank might even be encouraged to move faster than expected.











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