Central banks around the world are now tasked with dealing with the rising probability of a Greek exit from the Eurozone. The European Central Bank (ECB) is at the forefront as it must make tough choices this week regarding liquidity to Greek banks.
Chief MarketPulse Analyst Dean Popplewell wrote of the Greek Referendum aftermath:
Capital markets were expecting a narrow “yes” victory in Sunday’s Greek referendum, the restart of negotiations with its creditors, and the likely end to Prime Minister Alexis Tsipras’s government. Instead investors are faced with a resounding “no” vote victory (61.3% to 38.7%).
European leaders are now preparing to hold an emergency summit tomorrow and an olive branch token from Greece — Greek Finance Minister Yanis Varoufakis resigned. That could possibly pave the way for trust in potential future European Union-Greece discussions.
The Reserve Bank of Australia is not expected to make a change to its benchmark interest rate at record low of 2.00 percent, but central bank Governor Glenn Stevens has a chance to use rhetoric to depreciate the Aussie dollar. Governor Stevens has said that the central bank is open to more rate cuts. Australian growth has stalled as the price of commodities are under pressure as demand from China has slowed down. Annual inflation in Australia rose slightly to 1.5 percent in June as is well within the 2 percent RBA target.
The U.S. Federal Reserve will release the minutes of the Federal Open Market Committee (FOMC) meeting in June on Wednesday, July 7. A rate hike was at one point expected in that meeting until U.S. economic indicators started to soften and the rise start of interest rates expectation was pushed back to September and might move further back after a disappointing nonfarm payrolls report last week. The USD has gained across the board after the wave of uncertainty in the aftermath of the Greek referendum “No”vote, but the economy has so far failed to convince investors that the factors that hit the first quarter result are no longer an issue.
The Bank of England chief economist stated last month that an interest rate rise could derail the recovery of the economy. MPC member Andy Haldane was one of the first to hit the brakes on optimism in the fall of 2014 as the U.K. economy was seen as the leading candidate to raise rates. The surprising recovery was about to hit a slowdown period that was well forecasted by economists at the BoE. The Bank of England got a lot of flack for missing the early sings of the recovery and continued to issue dovish messages, but as one of the recent appointees Haldane has once again given the Old Lady some of the lost credibility back. Strong U.K. service activity has once again reignited talk of a sooner rather than later timing, but it will be interesting what the BoE has to say on Greece and the Eurozone and how it will affect the economy.
Central bank events to watch this week:
Tuesday, July 7
12:30am AUD Cash Rate
12:30 AUD RBA Rate Statement
Wednesday, July 8
2:00pm USD FOMC Meeting Minutes
Thursday, July 9
7:00am GBP Official Bank Rate
*All times EDT
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar