FX round-up: ECB QE speculation weighs on euro, buoys pound
Risk aversion was again the dominant theme on Tuesday as markets maintained a guarded outlook for the Greek crisis, despite news Athens might now be more likely to accomodate its creditors´ demands.
To take note of, after the close of markets Standard&Poor´s downgraded Greece´s long-term credit rating to CC from CCC. More significantly, it lowered its rating on the debt of lenders such as Bank of Piraeus to 'selective default'.
That appears to have fed speculation the European Central Bank would apply a greater haircut to the collateral presented by Greek lenders in exchange for funding assistance through the ELA facility.
Should the situation take a turn for the worse however, the ECB was expected to step up its programme of quantitative easing in support of other Eurozone periphery markets.
Against the above backdrop, Euro/GBP fell 0.47% to 0.7096.
Euro/dollar ended the day 0.74% weaker at 1.1133.
"The market continues to expect a deal at the last minute, including in the aftermath of the referendum announcement. As a result, few are willing to put on Euro downside, even as the odds of a deflationary shock to the Euro zone are rising. We continue to see mounting tensions over Greece as a catalyst for EUR/$ to go near parity, if contagion to other peripherals causes the ECB to accelerate QE," the Goldman Sachs Global Macro Research team wrote in a research note sent to clients.
Dollar/yen slipped by 0.14% to 122.40.
In parallel, the latest economic data out Stateside was slightly mixed.
The US Conference Board´s consumer confidence index for June jumped to a reading of 101.4 from an upwardly revised reading of 95.4 for May.
However, MNI Chicago´s regional manufacturing sector gauge dropped improved to just 49.4 in June from May´s level of 46.2 (consensus: 50.0).
Cable finished the day off by 0.27% at 1.5689.