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Greece haunting EUR; GBP ahead of CPI

Greece is back to haunt the EUR. Ahead of the vote in the Bundestag on the third Greek bailout market concerns have increased that the Chancellor would struggle to get sufficient support from its own CDU party given lingering uncertainty about the IMF involvement. The IMF will decide whether to join the new bailout only in October after reviewing the proposed measures to cut the Greek debt. These are unlikely to include any debt haircut, however. Given that a significant debt relief remains one of its key demands, the IMF's involvement remains very uncertain. 

All this could mean that the Chancellor will have to rely on the support from the opposition parties to get the bailout approved. Importantly, given the strength of the opposition inside the CDU, there is a non-negligible risk that any approval will be conditional on the IMF ultimately supporting the bailout and this could be seen as weakening Germany's commitment. 

GBP has long been one of the preferred safe-haven EUR-proxies and this has pushed EUR/GBP to multi-year lows in recent months. Today's UK CPI data and Thursday's retail sales data could put investors' appetite for GBP to the test, however. The BoE lowered its inflation projections in the August IR and the upcoming July CPI data should confirm the officials' cautious view, leaving GBP vulnerable to another correction lower against the majors. The retail sales release could have an even greater market impact. Indeed, a growing number of indicators (eg, disappointing June retail) are suggesting that the UK's domestic demand recovery is coming off the boil. In addition, the latest labour market data pointed at slowing weekly earnings growth in June. 

"Potential disappointments from the July retail sales data could put the GBP policy divergence trade to the test. The near-term risks for GBP/USD remain on the downside also ahead of the Fed minutes release on Wednesday and the US CPI data on Thursday", says CAB Bank.

In terms of overnight events the focus was on the RBA minutes and a speech by RBA Assistant Governor Kent. In both cases there was no surprise. It appears that materially weaker growth conditions are required in order to make a case of further policy easing. Ahead today and in addition to UK CPI, investors will closely focus on today's Global Dairy Trade action. Results are expected this afternoon and the outcome should have heightened impact on the NZD. 

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