By Omer Esiner of Travelex
NEW YORK (
) -- The dollar (USD) firmed against most of its major rivals again overnight as an uncertain outlook for indebted Greece weighed on market sentiment and favored traditional safe-haven assets.
Greece's request for aid from the European Union and International Monetary Fund last week failed to address key questions about the timing and amount of financial assistance for Athens. Specifically, investors worry that Germany, Europe's largest economy, will drag its feet in ratifying assistance for Greece, given that its people remain vehemently opposed to a bailout for Greece and its politicians face a regional election in early May.
Markets are also unclear on what kind of conditions financial aid will come with and how Greek citizens will respond to strict austerity measure imposed on them from Germany and the IMF. Broader sovereign concerns for Europe continue to dampen risk appetite and favor the lower-yielding dollar and yen (JPY).
The pound succumbed to selling pressure as a result of the broad drop in investor sentiment and a poll showing that none of the U.K.'s three parties has a majority heading into next month's general election. The potential for political gridlock raises doubts about the government's ability to pass difficult fiscal reforms.
Hotter-than-forecast Australian wholesale prices in the first quarter failed to add to the outlook for higher lending rates from the Reserve Bank of Australia. The Aussie and its dollar-bloc counterparts remained under pressure amid the broad decline in demand for yield.
: The single currency fell toward this year's lows overnight as a result of continued concerns about sovereign credit and Greece's ability to meet upcoming debt obligations.
Investors remain concerned about the timing and amount of an aid package. Overnight, an official from Germany's junior coalition party said that it was not certain that Berlin would commit to a bailout for Greece.
German Chancellor Angela Merkel, on the other hand, said her government would help Greece, but only if painful belt-tightening measures were put in place. The seeming divide within Germany is taking place amid a looming local election on May 9, which could see Merkel's government lose its majority in the upper house of parliament.
Lawmakers must walk a fine line by appearing tough on Greece while preserving confidence in the euro and EU. Aid for Greece would need to be agreed upon in some form before a debt obligation of around 8.5 billion euros comes due for Athens on May 19. Failure to reach an agreement ahead of that date could result in a credit event, perhaps a default, that would significantly undermine confidence in other peripheral states' fiscal health and mark a new low point for the 16-member bloc as a whole.
: The pound succumbed to a pullback overnight as mounting sovereign credit concerns and political uncertainty dented its newfound appeal. The broad pullback in risk appetite undermined the pound, which tends to trade in tandem with other risk assets like stocks and commodities.
The latest polls released overnight showed that none of the U.K.'s top three parties have a significant majority heading into the May 6 general election, an outlook that favors political gridlock. Such a scenario raises serious concerns about the government's ability to enact difficult fiscal reforms. The pound has benefited from the euro's declines of late, as much of the market's focus has been distracted by sovereign credit issues in the 16-member bloc.
Political uncertainty ahead of next month's election should continue to cap the pound's upside and could result in more acute selling pressure as the May 6 event approaches.
: Data overnight showed that Australian producer prices, the broadest measures of wholesale inflation, rose by 1.0% quarter over quarter in the first quarter, well above the 0.6% forecast. On a yearly basis, PPI fell by 0.1%, also hotter than the -0.6% year-over-year forecast. The Aussie failed to move on the news, as markets were instead focused on the broad decline in risk appetite. The data also did little to alter the outlook for gradual policy tightening from the RBA. The latest commentary from monetary officials hinted at a slower approach to lifting rates, an outlook that has let some of the wind out of the AUD's sails.
: While the Canadian dollar's upside has become somewhat more limited by the high sovereign risk in markets and the resulting pullback in commodity prices, it remains underpinned by expectations for a Bank of Canada rate hike in early June, exposure to improving U.S. demand and Ottawa's relatively healthy fiscal balance sheet. Consequently, the loonie should continue to outperform most of its dollar-bloc and commodity rivals, but could stall against the safer USD and JPY over the very near term.
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.