ForexSpace.com - Sterling fell against the euro yesterday as safe-haven flows exiting from the euro zone into UK assets eased. Market jitters have continued to intensify ahead of this weekend’s Greek elections, which this morning has reduced participants to looking like a bunch of rabbits caught in the headlights of an oncoming express train. Forex traders watching the euro nudge upwards against sterling to touch 81.15 pence on live charts have seen the single currency range-bound all week, which is where it is expected to remain until the agonies of the Greek vote have been played out.

By all accounts, come Monday 18, it could get really messy. Currently enjoying a late surge of popular support, Alexis Tsipras, leader of the leftist Syriza party, has once again pledged to rip up his country’s bail-out deal, while somehow keeping it within the euro zone. However, no one seems to have any idea who will win. What does seem to be clear is most Greeks are worried that no one is in control. For the electorate, the number one priority is to ensure that the election produces a workable government and avoid a so-called "Grexit".

As liquidity continued to be difficult, investors unsurprisingly remain ultra-cautious. No wonder forex traders - questioning whether the Hellenic elections actually add up to the deadline that will significantly change the situation in Europe - are hoping that the G20 can put enough pressure on Germany to ease off its austerity views. If so, it could help the euro, particularly against a backdrop of record bets against the currency. If the result in Athens injects more uncertainty in the coming weeks, watch out for GBP to regain some ground against the single currency.

Queuing up for QE?

In the UK itself, the chances of the Bank of England monetary policy committee members extending quantitative easing - like Greek voting - hangs in the balance. According to a recently-conducted Reuters poll of 25 leading economists, the activity in the currency bloc could tip things either way, and that the Bank will add to its £325bn QE. Furthermore, rumors have it that Goldman Sachs reckons the stimulus programme will be kick-started at the next MPC meeting. Alpari UK’s market analyst Craig Erlam comments this morning how the muted chatter of further intervention managed to lift markets overnight, but not by much. “Despite months of refusing to flood the markets with liquidity,” says Erlam, “we are continuing to hear promises from central banks that the option is still on the table. We've become very accustomed to QE rumors over the last 4 years, and now is no different.”

UK Chancellor George Osborne has aired his belief of the possibility that Greece might need to be sacrificed to save the single currency. In a highly unusual step, Osborne suggested that Greece may have to kicked out so Germany could convince voters that it was worth pouring more money into the troubled currency bloc. Speaking at a summit of chief executives in London, Osborne demonstrated his grasp of the situation by further insisting that he ultimately didn't know whether “Greece needs to leave the euro in order for the euro zone to do the things necessary to make their currency survive." So that’s all clear as mud then!

Drew Hillier. Editor, ForexSpace.com