Dollar Lower Vs. European Currencies
By Omer Esiner of Travelex
The U.S. dollar opens trading this week sharply lower against all of its European rivals as details emerge from the eurozone on a bailout for Greece that was agreed to over the weekend by the finance ministers of the eurozone members.
News that the ministers had agreed to nearly a 30 billion euros aid package, plus the International Monetary Fund's willingness to kick in an additional 10 billion euros, was enough to crank up the appetite for risk in the market much to the detriment of those holding greenbacks. The New Zealand dollar also proved to be a big winner largely on the back of its relatively higher rates of return.
Though down against the euro, both the Swiss franc and British sterling were sharply higher vs. the buck as well, hitting two-and six-week peaks, respectively. Traders seemed to place more of a premium on the swissy's proximity to the eurozone than its safe-haven status. Sterling's gains may be limited as they were largely chalked up to technical factors, not a sea change in the market's outlook for cable which at the moment remains bleak.
Few bright spots were apparent for dollar bulls. The Canadian Dollar continued to be undermined by Friday's weaker-than-expected jobs data. Aussie initially benefited from the notion of higher risk appetite before succumbing to profit-taking. Dovish comments from the Reserve Bank of Australia didn't help either.
A data-light calendar in the G7 Monday should keep trading headline-driven until things really get going Tuesday when we see trade figures out of the eurozone and North America and Wednesday when the data deluge begins.
EUR:
The euro was sharply higher in early European trading, though it has relinquished some gains this morning as news continues to emerge on the cementing of a rescue package for Greece, the eurozone nation of which the fiscal situation has been much ballyhooed of late. Greece, which has yet to tap the emergency funds, would be eligible to receive 30 billion euro from its fellow eurozone member countries as well as 10 billion euro in aid from the IMF. The news sent Greek bond yields sharply lower, a positive sign, and the euro sharply higher, also an intrinsic nod from the market that these steps were welcome by the market. The news, by no means a final page in this Greek epic, seems a step in the right direction but leaves open the question as to a long-term solution to the ills that plague the weaker members of the eurozone, the so called PIGS (Portugal, Ireland, Greece and Spain).
Germany, arguably the strongest member of the single currency bloc, tempered excitement by reminding markets that the funds, if they were to be released, would require an emergency session of European leaders. That raises the possibility that this plan may not be as cut-and-dry as it seems now. Traders remain on edge and, with the lack of data Monday, they will be poised to pounce on any evidence of reciprocation by any member of the block, particularly Germany.
GBP:
Sterling was able to extend its rally into this week as it appears to be benefiting greatly from the Greek news. Last week's sterling strength, which many have chalked up to a short squeeze (or traders being forced to buy cable after their bets for weakness turned against them) saw the pound reach a three-week high against the greenback.
Knock-on effects from the eurozone bailout propelled it higher yet to a six-week peak, though it has slipped a bit from those levels Monday morning. Uncertainly ahead of May's U.K. election as well as data that should remind markets that the U.K. is by no means out of the woods with respect to recovery, expect to diminish sterling's appeal. It should not be forgotten that the UK faces its own significant fiscal challenges in the near term and that the market remains pessimistic on the government's ability to deliver any positive reprieve in the months ahead.
JPY:
The yen was undermined by the finance minister's comments that suggested ruling officials favor a weaker local currency. This sent the dollar back towards seven-month peaks against the Japanese currency.
Omer Esiner serves as the Senior Currency Market Analyst at Travelex, Inc. a global financial institution specializing in corporate foreign exchange services and international payment solutions. In this capacity, he monitors, analyzes and interprets the economic, financial, political and technical factors that drive the movements of more than 100 currencies for Travelex. Mr. Esiner explains the currency markets' reaction to market events to clients, employees and members of the media.
You can view his daily reports, recording briefings, and quarterly reviews posted
. As an expert in foreign exchange, Mr. Esiner is quoted regularly by the financial media including The Wall Street Journal, CNN, Dow Jones Newswires, Reuters, the Nightly Business Report, National Public Radio, among others. Based in Washington, D.C., Esiner joined Travelex in February 2000. Prior to his current position, Esiner was a currency trader for several years. Mr. Esiner holds a bachelor's degree in economics from the University of Maryland, College Park. He is fluent in Turkish and proficient in Spanish.