By Omer Esiner of Travelex
The dollar moderated from a one-year trade-weighted high overnight as signs that Germany and the EU are moving closer to providing financial aid for Greece helped assuage market jitters.
Soaring credit spreads and record high costs of insuring Greek debt against default highlighted the market's lack of confidence in Athens' ability to finance its deficits and put additional pressure on EU officials to provide Greece with the financial backstop its government officially requested earlier this month.
Still, with Germany's population vehemently opposed to helping Greece, lawmakers, who face a local election in early May, have dragged their feet in approving a bailout for Athens.
The euro recovered from across-the-board lows after an EU official said that talks should conclude within days and that aid for Greece could total around 120 billion euros, three times the original amount proposed.
The pound fell to a one-month trough against the greenback as investors are focusing more on the likelihood of a hung parliament in next Thursday's general election. Political gridlock in the U.K. will undermine efforts to reform the government's finances and shines the spotlight on Britain's own fiscal problems.
The market will continue to be driven by comments and headlines out of the eurozone regarding aid for Greece.
: Weekly jobless claims fell by 11,000 to 480,000, in line with market expectations. Continued claims, the key gauge of longer-term unemployment, fell from 4.66 million to 4.64 million. The headline claims numbers remains stubbornly high around the 450,000 mark, a sign that job creation is taking place at a painfully slow pace. The soft claims numbers will do little to increase pressure on the
to lift rates from current levels -- a view that was clearly telegraphed in yesterday's communiqué that pledged to keep rates exceptionally low for an extended period of time.
: The drop in the euro to a one-year low and the blowout in credit spreads in the eurozone following S&P's downgrade of Spanish debt yesterday marked the latest chapter in the Greek credit saga, which has dominated activity in the financial markets for the better part of this year.
Increasing uncertainty and a growing sense of panic in financial markets have amplified pressure on EU and German officials to act quickly to contain the Greek credit crisis before it spreads to other peripheral nations in the eurozone.
This morning, ECB Governing Council member Axel Weber downplayed any chance of Greece defaulting on its debt while EU Economic and Monetary Affairs Commissioner Olli Rehn said that talks on Greek aid should conclude in days.
Still, no new details have emerged, and even Mr. Rehn conceded that aid was conditional on strict fiscal consolidation by Athens. Additional austerity measures like another increase in the VAT tax and more public-sector wage cuts have been met with continued protests throughout Greece.
Unions plan another nationwide general strike next week. While aid for Greece will likely be approved eventually, the fact that German officials continue to drag their feet risks additional damage to the euro. While additional details of aid should provide the single currency with near-term support, its outlook will continue to be marred by broader debt issues and the likelihood that fiscal tightening will keep much of the bloc stuck in anemic growth.
: The pound slipped to a one-month low against the greenback and a three-week low against the Canadian dollar, broadly undermined by increasing political uncertainty ahead of next week's general election. The latest
poll showed that economists see a 65% chance of a hung parliament. Such a scenario raises serious risks to the fiscal outlook as it would likely undermine any government's ability to reform U.K. public finances. The pound remains vulnerable to additional losses as a result, especially as markets continue to focus on Europe's deteriorating fiscal backdrop.
: As expected, New Zealand's central bank left its key cash rate unchanged at a record low 2.50% late yesterday. In its accompanying statement, the Reserve Bank of New Zealand said, "We expect to begin removing policy stimulus over the coming months." That outlook differs from the central bank's previous pledge to keep rates on hold until the middle of this year. The expedited pace of expected policy tightening has added to the kiwi's improved tone amid a backdrop of moderating risk appetite throughout market.
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.