Greece Deal Delayed
The details of the Greek bond swap have yet to be finalized, despite hopes of conclusion being reached on Friday. The Financial Times reported that terms had in fact been provisionally agreed between Greece and the IIF, but that the EU/IMF objected to the plan on the grounds that the proposed coupon was too generous and would prevent a return to a sustainable debt position. Over the weekend the IIF did sound optimistic that a deal could eventually be done, noting that the elements of a deal are “coming into place”. This is the most upbeat assessment the IIF have given so far. However, Greek media reported that IIF Chair Dallara has now left Athens leaving a smaller team behind to continue discussions. Indeed all the signs are that a deal will not now be struck in time for Monday’s meeting of Eurozone finance ministers. Already the euro has opened weaker on Monday, although with much of South East Asia celebrating lunar new year, we expect trading conditions to be relatively subdued. On Friday the Fed released details of its new communications strategy which will be deployed at this week’s FOMC meeting. Two additional charts will be released: one showing in which year FOMC members expect interest rates to rise − without providing any finer time resolution; and the other showing where members think the policy rate will be at year-end 2012, 2013 and 2014. Our US economics team expect the Fed to indicate that rates will remain on hold until 2014. We note that while this pushes back the mid-2013 guidance contained in previous policy language, the US rates market has already priced in a 2014 start to normalization so the dollar impact is likely to be muted. On Friday, EURUSD traded in a range 1.2887-1.2986, USDJPY 76.92-77.31.