By Omer Esiner of Travelex
The dollar was generally firmer in overnight trade as renewed sovereign credit concerns in the eurozone hit the single currency and undermined investors' appetite for risk.
Reports claiming that Greek officials are trying to renegotiate last month's deal with the EU and IMF rekindled concerns about Athens' ability to service it huge deficits.
Those concerns pushed the spread between Greek government bonds and benchmark German bunds to more than 4%, the widest spread since the launch of the euro in 1999.
The premium the market is currently charging Athens to borrow will exacerbate Greece's debt crisis and could force the EU and IMF to step in with financial assistance -- a scenario likely to see the single currency retest its recent lows. Data showing the eurozone's economy stalled in the final quarter of last year added to the euro's broadly heavier tone overnight.
Commodities pared some of their recent gains, causing the high-flying dollar-bloc group of currencies to pause for a breather overnight. Still the Aussie and the Canadian dollar continue to stand out as the market's best performers, holding near 11- and 21-month peaks, respectively, against the greenback.
A number of
speakers will be closely watched today, including Chairman Bernanke. While yesterday's minutes from the mid-March FOMC meeting were seen as dovish by many, upbeat U.S. data since then could see officials adopt a slightly more positive tone on the economy.
: The euro slipped to a one-and-a-half-week low against the greenback, a 30-month trough against the Canadian dollar and a record low vs. the Australian dollar overnight.
Renewed concerns on the sovereign credit front have once again undermined the appeal of euro-denominated assets.
Reports claiming Greece is trying to renegotiate last month's deal with the EU to bypass any IMF involvement have rekindled concerns about Athens' ability to finance its record deficits.
Those concerns continue to be exacerbated by the widening of Greek/German credit spreads, a sign that markets are becoming even less willing to lend to Athens.
The rising premium charged to Athens will severely impair its ability to roll over billions of euros in debt in the coming months, which could necessitate emergency assistance from the EU and IMF.
In addition to the renewed debt issues, the euro was damaged by a revision to fourth-quarter eurozone GDP showing the 16-member bloc stagnated in the final months of 2009. GDP was revised to flat quarter over quarter from the originally reported 0.1% increase. Year over year, GDP was revised to a decline of 2.2% from an originally reported decline of 2.1%. Although the data are very much backward looking, it does highlight the anemic nature of the eurozone's recovery. Separate data showing better than expected service-sector performance last month were largely overshadowed by the negative news overnight.
: The pound fell across the board after March's PMI for the U.K.'s dominant services sector fell from 58.4 to 56.5, overshooting expectations for a decline to 58.0. The disappointing figures added to the pound's broadly negative tone following yesterday's announcement from Prime Minister Gordon Brown that a general election will be held on May 6.
Investors worry the closeness of an election will result in a hung parliament and political gridlock in the U.K. Such a scenario would severely undermine the government's ability to deal with the U.K.'s huge deficits though difficult fiscal reforms. News that shows either the Conservatives or Labour with a growing majority over the next month would help the pound regain its footing.
: Recent comments out of Beijing suggest that the regime may be close to allowing the yuan to appreciate against the dollar.
China has effectively pegged its yuan currency to the greenback (many claim at an artificially low rate) since the start of the financial crisis to ensure its exporters remain competitive.
Mounting global pressure on China to allow its currency to appreciate has yielded little progress with Beijing. However, the U.S. Treasury's recent decision to postpone a report that could have labeled China a "currency manipulator" and an upcoming visit to Washington by China's Premiere have signaled a thaw in relations that could yield some small progress on China's currency controls.
Commodity currencies from Australia, New Zealand and Canada could suffer from yuan appreciation, which would act as a monetary tightening that could slow China's voracious demand for natural resources.
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.