The uncertainty surrounding the financial crisis in Greece, coupled with mixed signals from the government of Alexis Tsipras, has resulted in the euro (EUR) becoming a yo-yo currency, moving up and down as the news changes.
The currency pair EURUSD, -0. 0545% traded at a low of $1.1011 on Tuesday, showing a drop of 0.4% after trading at $1.01056 in late trading on Monday in New York. Affected by the same fundamentals as the euro, the British pound also fell against the dollar recording a drop of 0.9%, (GBPUSD, -.1229%) to trade at $1.5463, down from $1.5603 seen a day earlier.
Having already defaulted on the repayment of its debt to the IMF, the next deadline for Greece is the 3.5 billion euros due to be repaid to the European Central Bank (ECB) on 20 July.
Following the Greek referendum on Sunday, which resulted in 61% of Greeks indicating their refusal to accept the austerity measures laid down by the IMF and the eurozone as the conditions for continued support for the beleaguered country, the confusion continues.
Attending a eurozone meeting on Tuesday, PM Tsipras came up with a new proposal to ensure the continuation of the emergency funding until the end of the month which will allow for the repayment of the debt due on 20 July.
A senior Greek government official stated that, “In return, Greece will pass some of the overhauls demanded by the country’s international creditors”. He added that Greece remained open to other ideas for “a big viable solution”.
The complex situation seems back at square one after the Greek electorate made it clear “no austerity” after strong recommendations from Alexis Tsipras to stick to their guns. Two days later, the Greek government is once again offering a small bite of the cherry, suggesting some changes contrary to the mandate resulting from the referendum.
France, which has been a long standing ally in Europe of the Greek government, is pushing for Greece to accept a deal that will result in the passing of most of the budgetary constraints that were rejected by the Greek electorate.
Meanwhile, German Chancellor Angela Merkel is however standing firm and insisting on the austerity measures originally agreed upon by the previous Greek government to be accepted by the current government as a precondition for further aid.
Prime Minister Tsipras has in many respects painted himself into corner with the referendum result inspired by his rhetoric, knowing that he has to make the very concessions he advised the electorate to reject. As a result, these circumstances have elicited the view from many of the finance ministers that a Greek exit from the eurozone appeared inevitable and hard to avoid.
In the interim, we can expect more volatility in the euro and the British pound until there is clarity on the whole Greek impasse.
MT4 Chart: EUR/USD