The Japanese Yen (JPY) strengthened against the Pound Sterling on Tuesday as demand for safe haven assets was bolstered by market concerns over the Greek bailout standoff and concerns over the escalating conflicts in the Middle East and North Africa. Also buoying demand for safer assets was the release of mixed economic data out of China.
Concerns that Greece may not receive more bailout funds were heightened after German Finance Minister Wolfgang Schaeuble said that no aid would be granted to the nation until international lenders came to an agreement that the Syriza led government had agreed that it had delivered on its reform commitments.
‘Greece must talk to the institutions to ensure that the Memorandum of Understanding is fulfilled. Only when this condition has been met is there a possibility for payment to be made from the programme,’ said Schaeuble after a meeting of European Finance Ministers.
The standoff between Athens and Brussels looks set to intensify after it was revealed that Greek Finance Minister Yanis Varoufakis was forced to agree to allow representatives from the deeply unpopular Troika to return to the Greek capital and peruse the nation’s finances. Rumours are rife that Athens was given an ultimatum: either it allowed the auditors back in or its emergency funds would be halted.
The situation in Greece is becoming increasingly desperate as money begins to dry up. If the standoff continues, then economists will raise their bets that the nation could leave the Eurozone, a move that would heighten demand for safer assets and support the Japanese Yen.
Also supporting demand for safer assets was mixed economic data out of China, which showed that producer prices on a year on year basis declined by 4.8%, a sharper fall than the 4.3% drop forecast by economists. On an annual basis consumer prices rose by 1.4%, a figure that was much faster than the 0.9% gain expected.
A mixed picture of inflation in February will fuel the debate over deflation and future rate cuts. Consumer Price Inflation (CPI) sharply beat market expectations and January’s CPI could be the bottom of the current cycle, thereby easing pressure for the People’s Bank of China to make more rate cuts.
Investors are also keeping a wary eye on events in the Middle East as the war against the self-styled Islamic State intensifies in Iraq and as fresh atrocities were carried out in Libya.