• No news is not good news for Greece
  • UK inflation sees bottom
  • US housing starts show more good data
  • AUD goes lower on central bank comments

With little movement in the Greek situation in the past 24 hours, the majority of currency pairs were very happy to trade sideways through yesterday’s session – but volatility has kicked up this morning.

In the lead-up to the Eurogroup meeting on Thursday the pressure on Greece is becoming ever more concentrated. ECB President Mario Draghi told the European Parliament yesterday that Europe needed a “strong and comprehensive agreement” and a “quantum leap.”

German Finance Minister Schaeuble commented that he could see the Eurozone without Greece, so you would think that the Greeks would be clamouring for further talks. Not so. Tsipras’ government said yesterday that it was awaiting an invitation to further talks and would respond when asked to do so. Much like my invite to this year’s Oscars, I guess it must have gotten lost in the mail.

Rumors from a German newspaper this morning suggest that the Greek government will ask for a 6 month extension on their repayment to the IMF. These rumors have hammered the euro lower across the session. Tsipras is speaking as I type this and no confirmation of a delay has been forthcoming. Even if this payment was delayed until the end of the year, it would buy them little time; another EUR2bn of debts must be paid back in July

We can expect more headlines through the session.

Deflation in the UK was expected to be brief – it has lasted only a month. To be honest, there is little difference between 0.1% and -0.1% for the man in the street. Deflation or very low levels of inflation are both stimulatory for the UK economy as consumers continue to see real wage increases and spend accordingly.
Where it does matter a little more is on Threadneedle St and the Bank of England will be quietly thankful that we are back into positivity. Expectations are now that they have put in a ‘bottom’ in inflation and that the speed of price increases will gradually repair closer to target as the year goes on and last year’s falls in energy prices fall out of the basket.

I believe that once CPI hits 1.0% and is expected to remain stably above that mark, we will see the Monetary Policy Committee take the plunge and hike rates – that could be as soon as Q1 next year.

Sterling strength may also be represented by tomorrow’s labor market report and the Bank of England minutes that could show some freshly emergent policy hawks.

US housing starts have continued the recent run of consumer facing good news from the US economy. Despite falling 11% from an artificially high number, over a million houses broke ground in May while building permits, showing the supply chain of housing demand, hit the highest level since 1990.

EURUSD and AUDUSD are lower this morning as Greek issues wobble world markets. Comments from the Australian central bank which state that the currency should be weaker given growth fundamentals has also helped AUDUSD lower.

GBPUSD is being held higher by that inflation number while USDCAD is also rising as investors look to get shot of risk ahead of tomorrow’s Federal Reserve meeting.

Have a great day.