By Omer Esiner of TravelexThe dollar fell to a one-week low against a basket of its major counterparts overnight, as moderating concerns about a Greek debt default buoyed investors' appetite for higher-yielding assets. The euro rebounded from a nine-and-a-half-month low against the dollar after sources in Athens reported that the Greek government would slash another 4.8 billion euros from its bloated budget to help bring its debt levels down to more manageable levels. The news of more painful spending cuts and tax increases increased the likelihood that Greece's EU partners would be willing to ante up their taxpayers' funds for a bailout. The single currency could enjoy more near-term gains from headlines that suggest an EU backstop for Greek debt is likely. However, the euro's upside should ultimately remain capped by skepticism about Athens' ability to implement its austerity plan and from the similarly dismal fiscal position of a number of other peripheral eurozone states. The pound got a boost from a huge jump in service-sector activity in February. The big increase in the service-sector PMI sparked short-covering in the pound, which has recently fallen to multimonth lows on mounting political uncertainty and the anemic nature of the U.K.'s economic recovery. EUR: The euro rebounded from lows against the greenback and Canadian dollar overnight, broadly supported by the latest headlines out of the eurozone that suggest additional painful budget reforms from Athens are in the pipeline. Sources announced that Greece's government will cut its budget by another 4.8 billion euros, half of that number coming from a reduction in civil servants' payments and the other half coming from a rise in the value-added tax. The news suggested that the painful budget reforms in Greece could make an EU bailout more palatable to taxpayers in Germany. The euro benefited from the reduction in worries about a possible debt default by Greece and could enjoy additional gains as news headlines suggest an EU or German backstop for Greek debt is likely. However, the Greek public's passion for protests and strikes makes the implementation of Athens' austerity plan very suspect. Similarly dire fiscal conditions in a number of eurozone peripheral nations will also keep the single currency's gains limited. Even if the possibility of a default in Greece, Spain or Portugal is taken off the table, the fiscal tightening needed to bring those nations' budget deficits down to within the EU's limits will undermine already anemic growth in the bloc and postpone any tightening by the European Central Bank.
GBP: The pound rebounded from a 10-month trough against the greenback and a record trough against the Canadian dollar. The reduction in risk aversion due to the moderation in Greek default fears has helped riskier assets like stocks, commodities and, to some extent, the pound. The pound also benefited from news that showed the dominant services sector expanded at its fastest pace in three years in February. The February service-sector PMI rose from 54.5 to 58.4, well above expectations for a reading of 54.9. A reading above the 50 mark indicates an accelerating pace of expansion in the sector. The news prompted some short-covering in the pound, which had fallen sharply across the board as a result of the U.K.'s lackluster recovery. While additional near-term gains in the pound are likely, its upside should remain capped by a long list of economic and political headwinds. CAD: The Canadian dollar held on to the bulk of its recent gains overnight. The loonie enjoyed a broad rally this week after an upside surprise to fourth-quarter GDP and a slightly upgraded central bank monetary statement suggested that lending rates could rise from record lows sooner than previously forecast. The improvement in risk appetite overnight and the resulting rise in commodities cemented the CAD's upward bias and should see it continue to outperform its major rivals. AUD: The Australian dollar touched on a one-week high against the greenback overnight and was near the higher end of its recent ranges against other major currencies. Data overnight showed that Australia's economy expanded by 0.9% in the fourth quarter from the previous quarter. This was in line with expectations and was an impressive improvement from the previous quarter's 0.2% quarter-over-quarter growth. The data highlight the view that the central bank will continue to raise its cash rate further in the months ahead.