By Omer Esiner of TravelexThe U.S. dollar held steady near a 10-month peak against the beleaguered British pound and briefly touched on a new nine-and-a-half-month high against the euro overnight. Sterling remains broadly undermined by concerns that an expected election around the middle of the year will result in a hung parliament Political gridlock in the U.K. will severely limit the government's ability to enact needed spending cuts and fiscal reforms to bring Britain's massive deficits down to more manageable levels. The euro slipped to new lows overnight after a number of Greek unions announced plans to strike in protest of Athens' proposed spending cuts and tax increases. Popular resistance to the government's austerity plan to bring its unmanageable defects under control raises serious doubts about the debt outlook and continues to weigh on the euro. With EU officials currently in Athens, and Greece's Prime Minister set to visit Berlin late this week, news flow on Greece's debt issues will continue to drive the single currency's direction. Australia's central bank expectedly raised its key cash rate by 25 basis points to 4% overnight. However, the Aussie's upside remained limited by the RBA's accompanying statement, which signaled a gradual pace of policy-tightening in the months ahead. The Canadian dollar soared to a one-and-a-half month peak against the greenback overnight following yesterday's solid growth data for the final quarter of last year and on expectations the Bank of Canada could upgrade its assessment of the economy at the conclusion of its policy meeting early this morning. No U.S. data is set for release this morning. EUR: The single currency briefly touched on a new nine-and-a-half-month low against the greenback overnight and fell to a new 15-month low against the Canadian dollar before regaining its footing. Greece's largest public sector union announced a planned strike in protest of the government's austerity program, which would slash spending and raise taxes. Meanwhile, traffic in Athens came to a standstill when taxi drivers abandoned their vehicles to march, also in protest of planned increases in taxes. Greece's long history of sometimes violent public protest and strikes raises serious doubts about the government's ability to implement needed reforms to bring its swelling deficits back down to more reasonable levels. Without the implementation of painful reforms by Athens, it is unlikely that other EU members like Germany would be willing to ante up their taxpayers' money for a bailout for Greece. EU officials are currently in Athens, and Greece's Prime Minster is expected to visit German leaders on Friday. The euro could garner near-term support on news that a bailout plan for Greece has been agreed upon. Investors also await the ECB's Governing Council meeting on Thursday for any comments from President Trichet on debt in the 16-member bloc.
GBP: The British pound remained near a 10-month trough against the U.S. dollar and a record low against the Canadian dollar, still broadly damaged by mounting political uncertainty ahead of a general election later this year. Recent polls have shown that the outcome of an election would be very close and likely result in a hung Parliament. Such a scenario would undermine any government's ability to push through difficult spending cuts needed to bring the nation's gaping deficits down to more manageable levels. Political uncertainty has added to an already clouded outlook for the pound, which has been dogged by a lackluster economic outlook that has kept the door to additional policy easing from the BOE open. USD: The Reserve Bank of Australia expectedly raised its key cash rate by 25 basis points to 4% overnight. The Aussie firmed on the news but suffered from a limited upside due to the somewhat more balanced nature of the accompanying statement than many had expected. Officials noted an improving domestic economy and a jobs market that appears to have bottomed. Still, they warned of increasing sovereign credit concerns and still-tight credit conditions in some parts of the world. Investors took the statement as a signal that lending rates will continue to rise in the months ahead, but very gradually. Data showed retail sales jumped by 1.2%(m/m) in January, confirming the improvement in domestic demand. CAD: The Canadian dollar rose to fresh highs across the board overnight, broadly boosted by yesterday's solid reading of fourth-quarter GDP. The strong growth figures highlighted the nation's improving recovery, which is being fueled by rising domestic demand and stronger export growth. The data suggested that the BOC could acknowledge an improving economic backdrop when it meets this morning and signal that lending rates may have to rise sooner than previously forecast. Such an outcome would add to the CAD's recent gains.