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Dollar Hits One-Year High

By Omer Esiner of Travelex

The dollar built on its Monday gains to hit new one-year peaks against the euro and a basket of major currencies on Tuesday as a decline in risk appetite and worries about Europe's debt troubles bolstered the greenback.

The euro remained under pressure despite a weekend announcement that leaders from the European Union and the IMF had created a 110 billion euro ($145 billion) rescue package for debt-plagued Greece. Still, much uncertainty remains, with investors questioning whether the loans will be enough, whether Germany will sign off on the deal and whether the aid package will help prevent Greece's troubles from spreading to other highly indebted nations in the bloc like Portugal and Spain. Consequently, Europe's debt problems should help to limit the single currency's upside for the foreseeable future.

The pound fell on Tuesday on uncertainty ahead of Thursday's general election in the U.K. However, the pound's overnight descent was somewhat slowed by a British manufacturing report that showed the fastest pace of growth in 15 years in April.

The Canadian dollar fell, hurt by the overall decline in investor sentiment and by weaker oil prices of less than $85 a barrel.

Australia's currency tumbled despite a quarter-point rate hike by the Reserve Bank of Australia to 4.5%. The RBA's accompanying remarks suggested a slower pace of tightening in the months ahead.

U.S. data for March on factory orders and pending home sales were due this morning at 10 a.m. EDT.

EUR: The euro's downtrend continued overnight on investor worries about the financial health of some of the bloc's weaker economies. Despite a weekend agreement on a 110 billion euro ($145 billion) plan created by European finance officials along with the IMF to help Greece avoid tipping into bankruptcy, the single currency plunged to a new one-year low against its U.S. counterpart.

Market participants now question how effective the deal will be in addressing Greece's debt troubles. To secure the emergency loans, Greece had to agree to fresh belt-tightening measures such as tax hikes and public-sector pay cuts over the next three years. Given strong public opposition, many doubt whether Athens will be successful enough to improve its fiscal position. Investors also fear that other eurozone countries with soaring debt loads such as Portugal and Spain could see their finances worsen. Europe's debt problems are a key headwind to the growth outlook in the bloc, a scenario that could push back the timetable for any ECB policy tightening over the longer term.
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