Greek Progress Rewarded
The dollar was soft overnight as investors rewarded the positive developments in Greece to move back into risk assets. Last night the Greek parliament voted in favour of a new package of austerity measures early on Monday morning, by 199 votes to 74. There were 27 abstentions. The euro got a moderate boost once the count got underway, but we saw no follow-through after the result was announced. In a sign of heightened political discord, 45 of the 300 lawmakers were expelled from their political parties for breaking ranks and voting against party lines. Safe passage of the legislation will go some way to alleviating market concerns after five Greek ministers resigned in protest on Friday. It should also provide a positive backdrop to the two upcoming meetings of Eurozone finance ministers on Feb. 15 and Feb. 20. However, while this austerity vote is designed to help secure a second EU/IMF program for Greece, it is not in itself sufficient. The IMF has already said it also needs to see ‘near universal’ participation in any private sector debt restructuring before another round of funding can be considered. We doubt a purely voluntary approach will achieve a take-up approaching such levels, which is one reason why we maintain our bearish view on the euro. The private sector involvement negotiations have yet to reach a final conclusion and the IIF has not provided a recent update on the situation. With the prospect of a disorderly Greek default rising as March 20 approaches, investors may start to pull back from the recent rally, though we acknowledge that growth continues to surprise to the upside in general. Ahead this week, the focus will be on policymaker positions: the BoJ and Riksbank will hold policy meetings, while the Bank of England and Federal Reserve release their quarterly inflation report and meeting minutes, respectively. Macro activity surveys will also be released. Overnight EURUSD traded in a range 1.3284-1.3185, USDJPY 77.78-77.54.
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UBS Investment Bank