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Last week ended with a crash as the German newspaper “Der Spiegel” reported that the Greek government was likely to announce that it was to default on its debt obligations and leave the EU. This came out of nowhere and prompted furious rebuttals from members of the EU and prominent Greek and German politicians. The market is of course worried that, while an element of the Greek restructuring is priced into the current euro price, a chaotic collapse and exit from the single currency is not and hence the fall in the euro.

The single currency slipped below 1.54 in EURUSD and regained the 1.14 handle in GBPEUR terms before the Friday close and has only slipped back marginally in this morning’s Asian session. Focus will now once again turn to the periphery nations of Portugal and Spain and whether the fundamentals in those countries are strong enough to survive further fiscal headwinds. If there is going to be a time to see the euro weaken it is likely to be today.

Sterling had already kicked on Friday morning as inflation was shown to be stubbornly high in the UK. Producer prices in the UK hit 5.3% in the month of April and while that is not a high it shows a rebound from a decline in the previous month. Most of the rise is as a result of soaring commodity prices (oil, cotton, food etc) but given falls in commodity markets last week further moderation may occur although inflation expectations by consumers and producers are still elevated. While it had no real impact on interest rate markets it obviously increases headlines pertaining to interest rate increases; something that won’t happen until the growth profile of the UK improves.

Risky assets had also accelerated on Friday after US Non-Farm Payrolls surprised to the upside. 244,000 jobs were added in April against expectations of 185,000 although the unemployment rate rose to 9.0% from 8.8%.

There has been some moderation in sterling this morning as Halifax housie prices showed a large decrease in the month of April. Prices fell by 1.4% in the month versus expectations of a 0.1% rise.

Latest exchange rates at time of writing