A Greek Cliff-Hanger

The Euro got a reprieve after the pro-bailout parties in Greece managed to secure a slim parliamentary majority in the Sunday election, easing concerns that the country would be forced to leave the Euro bloc. At home, the BoE announced the activation of its extended collateral term repo facility. The current week will be action-packed with several key economic releases playing out. The BoE meeting minutes take centre stage on Wednesday. Disappointing macro economic data across the Atlantic has provided further ammunition for supporters of QE3. World leaders meet at the G20 summit today to formulate strategies to prioritize growth and address the Euro debt crisis.

Pound Sterling – UK Markets

Despite disappointing trade data, the Pound strengthened against the US Dollar in Friday’s session following a raft of dismal releases across the Atlantic. Additionally, the currency found support against the Euro after the Swiss National Bank signaled that it has begun converting Euros in its foreign exchange reserves into Sterling. Meanwhile, the BoE unveiled an emergency lending operation in a move to curb a possible liquidity crunch. However, the currency pared its gains against the Euro this morning as a positive outcome of the Greek elections allayed concerns. A survey by Rightmove indicating a rise in British housing prices to a record high for April had little impact on the currency. Markets await inflation, unemployment and retail sales data due for release later this week, in order to gauge the prospects for a new round of asset purchases by the central bank in its next monetary policy meeting. Further developments in the Eurozone are likely to dominate market sentiment for the day. Meanwhile, a speech by BoE Deputy Governor, Paul Tucker would also be closely tracked.

US Dollar – US Markets

The US Dollar edged lower against the Euro in today’s session, as pro-bailout parties won enough seats to form a coalition government. Meanwhile, positive signals from today’s G20 meeting could further dampen the demand for the greenback. On Friday, the US Dollar retreated against its peers, as a slew of weak economic releases revived hopes that the US Federal Reserve would induce a third round of stimulus to counter growth fears. Data revealed that the US consumer sentiment fell more than expected for June, while industrial production unexpectedly contracted for May. Amidst the prevailing weakness in the US economy, markets expect the central bank to extend its long-term bond buying through the Operation Twist by a few months from the current deadline of June in its monetary policy meeting later this week. With NAHB’s housing market index being the only significant release for today, news flows emanating from the Eurozone and outcome of the G-20 meeting is likely to set the risk tone for the day ahead.

Euro – European Markets

The Euro advanced against its counterparts in today’s session on abating fears that Greece would leave the single currency union, after pro-bailout parties in Greece secured a joint majority in Sunday’s election. Subsequently, Eurozone Finance Ministers have expressed their willingness to adjust the terms of Greece’s bailout package. The region’s Finance Ministers meeting during the latter half of the week would be closely watched in order to gauge their stance over dealing with Greece and Spain’s financial troubles. Meanwhile, world leaders in the G20 meeting beginning today are expected to support calls for increasing IMF’s firepower. In France, François Hollande's Socialist Party secured a paliamentary majority in elections thereby paving the way for them to pass legislation aiming to boost growth prospects. With an apparently quiet day in terms of macro releases, markets are set to closely track the slew of PMI data from across the Eurozone scheduled later this week for further insights on the economic landscape.

Other Currencies – Highlights

The Yen took a hit against the majors as an improvement in risk appetite as a positive outcome of the pivotal Greek elections sapped demand out of safe assets and prompted investors to move towards high yield assets. Moreover, domestic data indicated a decline in Tokyo Condominium Sales and Nationwide Department Store Sales for May. Meanwhile, the Bank of Japan in its monthly economic report raised its assessment on the nation’s exports and production but cautioned of growing risks to the economy from slowing Chinese growth and European debt crisis. The minutes of the BoJ’s latest monetary meeting, coupled with trade data slated later this week, is expected to be closely tracked by market participants. Outcome of the G-20 meeting is expected to impact risk sentiment for the day and provide further direction to the Yen.