Greece today said that it would not be able to make a payment to the IMF on Friday if the country’s creditors don’t come to an agreement to fund the country. Greece is due to pay 300 million euros to the IMF on Friday and 1.23 billion euros in three other payments in the month of June.
Despite the ructions that Greek instability caused in the market, the Euro spiked in value on Wednesday against the dollar. The currency was up more than 1% to trade at 1.1276 this morning. The Euro was selling for 1.0921 on Monday.
ECB offers solidity
The reason for the rise in the Euro has more to do with the ECB than with any confidence in Greek leaders. In a statement on Wednesday Mario Draghi, the head of the central bank, said that inflation in the Eurozone in 2015 was set to hit 0.3 percent. That’s higher than past forecasts suggested.
An increase in inflation means that the ECB may be forced to raise interest rates sooner than expected. It may also be forced to reign in its money-printing QE operations in order to slow the rise in prices.
Mario Draghi’s inflation target for the Eurozone as a whole is at 2%, but if that figure is exceeded or approached in the bigger economies he may be forced to put a halt to one or more of his bank’s current money easing operations.
Interest rates stay low
The ECB left interest rates unchanged and called on Greece to make an effort to reach consensus with creditors in order to allay another Eurozone crisis.
RBS noted that before the ECB press meeting, consensus analyst forecasts said that it would be 32 months before the ECB raised rates. In contrast the same group were looking to see the Fed raise rates in seven months and the Bank of England to raise rates in twelve months.
The bank said that “Markets still waiting on someone to raise rates as ECB holds.,” in a tweet sent out during the event.
Mr. Draghi is happy with the pressure that his asset-buying has put on prices in the EU. A similar program in the US failed to move inflation as expected and the rate of general price increase was stuck below zero in the first months of the year.
Greece will remain a problem going ahead, but it’s clear that the markets don’t expect that state’s finances to greatly impact the future of the single currency.
As the deadline for payment approaches, it is clear that the markets care much more about comments from Mr. Draghi than those from Greek Prime Minister Alex Tsirpas.
Mr. Tsirpas is supposed to fly into Brussels this afternoon in order to discuss a funding deal with the troika.
The Dow Jones Greece Total Stock Market Index (INDEXDJX:DWGC) was up 4.38% for the day so far at time of writing. Greek investors are hoping for a deal breakthrough before the end of the week. The index has lost more than 36% of its value in the last week.