Fx Trading, The Euro And Greece, Sterling And The Election
In the FX markets, as far as the Euro is concerned all eyes have been, and are still on, Greece. As far the Pound is concerned, all eyes are on the UK election.
It appears that Greece has finally been bailed out. For a while it looked like the Greeks could only borrow at 8%, they have now had a highly successful Bond issue and sold 1.6 billion Euros.
The rather attractive rates circa 4.9% gained much interest from short term traders and also sparked a rally for the Euro in both the Euro/Pound and Euro/Dollar spreads markets.
Having said that, as with all such recent rallies surrounding the Euro, it was short lived. The markets have seemingly returned to an unconvinced attitude regarding Greece’s overall long term debt issue.
In the UK, the Pound was wavering on every election poll that suggested a Hung Parliament, now Sterling seems reasonably happy with any polls indicating that result. Of course the chance of Gordon Brown returning isn’t miniscule. The Conservative Party lead seems very fragile, especially when you consider that they should be miles ahead.
About 35% of the UK workforce is directly employed by the Government. Another 10% is probably dependent on State contracts of one form or another. Naturally many of these people would be more inclined to favour the Labour Party. If you add their usual voter base, it seems unlikely this large group will vote against their own self interests.
So what to do in the FX markets? According to Simon Denham of InterTrader, “A Labour win would be poor news for Sterling in the short term but even a Tory Government could be hamstrung if it only has a tiny majority.
“The Bank of England looks to be stuck with ultra low rates for some considerable time. However, the levels of debt across the globe seem, contrary to expectations, to be having their own dampening effect.
“A classic example is Greece where 7-8% was deemed to be such a disastrous rate for the country to pay that they could only be bailed out. However, from 1970 to 2000 Greece would have been pleased to have been able to borrow at such an advantageous level.
“The same could be said for the UK during the 1980s when the Long Dated Bond was the 11.75%. Although if the UK had to pay half that rate on long dated debt now it could have a serious impact on the UK’s ability to sustain the deficits”.
So what to trade? Well Sterling markets look rather difficult to predict. Although if the Greek bond issues start to falter, or if there is further suspect news about the Greek bailout then, on current form, that could negatively affect the Euro.
A leading financial writer based in the heart of London’s Financial District. Peter Jones is a seasoned commentator on the spread betting markets.