Dollar Pares Some of Its Impressive Gains
By Omer Esiner of Travelex
The U.S. dollar pared some of Monday's impressive gains as moderating risk aversion tempted investors out of the relative safety of dollar-denominated assets. The U.S. currency had risen Monday in a broad pullback in risk in the wake of Friday's
Securities and Exchange Commission
complaint against banking giant
Goldman Sachs
(GS) - Get Report
and mounting concerns about debt issues in the eurozone.
Some of those worries, which undermined emerging market assets and commodities since Friday, were offset by positive corporate earnings, which buoyed U.S. stocks Monday. The ebb and flow of investors' appetite for risk continues to be a key driver of activity in financial markets, especially in the absence of any major U.S. economic data.
The euro remained dampened by lingering credit concerns. Overnight, European Central Bank governing council member Axel Weber said Greece may require up to 80 billion euros in aid to avoid a credit default, double what the European Union and International Monetary Fund had agreed to pledge last week. His comments came ahead of a Greek bond offering later this morning, which will be a key test of market demand for Greek debt.
The pound rose across the board after an upside surprise to March's consumer price index fanned speculation that the Bank of England may be forced to lift lending rates earlier than next year. A busy British economic calendar this week will be critical in shaping the outlook for monetary policy in the U.K.
USD:
The greenback maintained a more defensive tone overnight as investors trimmed some of their safe-haven dollar positions in favor of higher returns abroad. The dollar had benefited since Friday amid a generally risk averse market that was largely driven by Goldman Sachs-related headlines and mounting sovereign credit concerns. Some market jitters were assuaged by positive earnings from
Citigroup
(C) - Get Report
and
IBM
(IBM) - Get Report
Monday and blockbuster quarterly results from Goldman Sachs Tuesday morning.
Risk has been a key driver of market activity amid a generally quiet U.S. economic calendar. Key data later this week, including new- and existing-home sales, the producer price index and durable goods should once again shift the market's focus back onto underlying fundamentals, with positive reports likely to keep the greenback generally well-supported.
EUR:
Strong German investor sentiment, as highlighted by the rise in the closely watched ZEW from 44.5 in March to 53.0 in April, failed to lift the single currency. Instead, investors focused on mounting worries about Greece's ability to service its huge debt. ECB's Weber compared Greece to a nationalized German real estate lender and said Athens would need up to 80 billion euros in assistance, double the amount pledged last week by the EU and IMF. His comments highlighted the uncertain outlook for Greece, despite assurances of aid.
Later Tuesday, the Greek government will auction 1.5 billion euros of 13-week bills. The very small issuance will nevertheless be seen as a key test of market demand and confidence in Greek debt. Weak demand or an excessively high interest rate would further weigh on the single currency.
GBP:
Sterling jumped across the board after data showed that annualized CPI rose by 3.4% in March from February's 3% and well above the forecast for 3.2%. A weak pound combined with higher energy and commodity prices boosted the headline reading of consumer prices, which rocketed past the BOE's target for the second time this year. The news sparked some speculation that the BOE could be forced to lift lending rates earlier than next year.
A very busy economic calendar week, which includes key jobs data, minutes from the BOE's meeting earlier this month, public sector debt and the first reading of first-quarter gross domestic product, will be instrumental in setting policy expectations in the months ahead. Strong figures, particularly on the jobs and growth front, would likely see the pound retest its recent highs across the board.
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.