Euro Gaps Lower As Greek Debt Deal Not Done

By Boris Schlossberg, Director of Currency Research, GFT,

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@import url(/css/cuteeditor.css); The EUR/USD gaped lower at the open of this week's trade after negotiations between private sector creditors and Greek government failed to produce an definitive agreement this weekend. Institute of International Finance chief Charles Dallara, who had been negotiating on behalf of the private credtitors with Greek officials regrading the bond-swap plan, left Athens Saturday due to differences over the interest rate the new bonds would pay.

The two sides appeared to be closing in on a deal that would give creditors new bonds paying a 3.5% coupon for shorter maturities and rising to a cap of 4.6% on longer-dated bonds. The average coupon would amount to around 4%. Speaking to television station Antenna, Mr Dallara said, "Our offer, delivered to the (Greek) Prime Minister, is the maximum offer consistent with a voluntary PSI deal," adding, "I remain quite hopeful that various efforts will come together."

However, people familiar with the matter said the IMF and Germany don't believe Greece's debt would return to sustainable levels if the average coupon on the new bonds is around 4%, pushing for a lower coupon. Greek newspaper Kathimerini reported that the European Commission, International Monetary Fund and European Central Bank requested a the report Friday to determine if the PSI will make the Greece's debt sustainable.

The uncertainty regarding the deal between private sector investors and Greece has renewed concerns regrading the viability of Greece as an EU member going forward. The country is saddled with 169% debt to GDP ratio and faces a 14 Billion EUR repayment in March which it cannot meet unless it receives another tranche of bailout funds from EU. The EUR/USD remained under pressure at the start early morning European trade but appeared to have stabilized at the 1.2900 level as it tried to fill the gap left from Friday's close. However, unless the Greek debt issue comes to a resolution the pair is unlikely to generate much upward momentum and could come back to test the session lows at 1.2875 as the day proceeds.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing bonds
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