The euro has traded moderately firmer, with EUR/USD establishing itself in the upper 1.10s, EUR/CHF knocking at the door of 1.0500, and EUR/JPY holding in the upper 136s, over half a big figure up on yesterday’s closing level. Higher Bund yields, and lower Greek yields, would seem a convenient explanation heading into the U.S. payrolls report and Sunday’s referendum in Greece.
A big conundrum is that Greek PM Tsipras is seeing the vote as a chance to get a better deal with creditors, but Eurozone officials see it as a vote on Eurozone membership. S&P Ratings is estimating 50% odds of a Greek exit.
S&P sees a Greek exit risk at about 50%. The rating agency said a Greek exit from the Eurozone may not immediately hurt the sovereign ratings of other Eurozone members, as the financial contagion risk is containable, but warned that it may trigger long term consequences that are hard to foresee. On the one hand it could highlight again that there still is no real lender of last resort in the Eurozone, which could cause fresh pressure on peripheral countries, especially as a Greek exit would highlight that the single currency is not irreversible. On the other hand it could make the Eurozone stronger, as it will become clear that the currency union comes with rules that officials are willing to enforce, which will limit the free-rider problem and could make Germany more willing to allow greater risk sharing in the long run.
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