By Omer Esiner of Travelex

The U.S. dollar firmed back toward the higher end of its recent ranges against the euro and British pound overnight, but slipped against the broadly stronger Canadian dollar.

Investors shunned EUR-denominated assets amid signs of a growing rift between Germany and Greece and uncertainty about the outlook for EU assistance for Athens. Resistance on the part of Germany to come to the aid of indebted Greece has prompted officials in Athens to talk of possible IMF assistance, a move that would undermine the European Central Bank's authority and be seen as detrimental to the image of unity within the EU.

Conflicting reports have kept uncertainty high, with many seeing next week's EU summit as a critical event in any EU plans to aid Greece. Failure to reach some agreement would further dent the appeal of the euro and likely see it retest its recent lows.

The Canadian dollar rose back toward a 20-month peak this morning, after an upside surprise to February's CPI raised the risk of Bank of Canada monetary tightening earlier than previously expected. The hotter-than-forecast numbers offset the pullback in crude oil prices toward this week's lows below $82 a barrel.

With no U.S. economic data on tap for today, consolidation is likely to be the session's main theme. Softer stocks and commodities would likely see the greenback wind down the week near the upper end of its ranges.

EUR: The euro succumbed to renewed selling pressure across the board once again overnight, underscoring the notion that investors continue to view EUR strength as a selling opportunity. The euro fell as investors continued to worry about the outlook for Greece and other highly indebted euro zone nations like Spain, Portugal, Ireland and Italy.

Resistance on the part of Germany to come to the aid of fellow EU member Greece has fanned concerns that a framework for internal resolution to the debt crisis may prove unachievable. Greece's prime minister said yesterday that his government's strict austerity plan to bring its budget deficit down would be nearly impossible to implement if Greece is forced to borrow at excessively high market rates.

Investors are charging the Greek government nearly double what Germany must pay to borrow, which exacerbates the Athens' deteriorating fiscal situation. The prime minister said that a lack of assistance from the EU would force Greece to seek help from the IMF as a last resort.

Yesterday, German Chancellor Angela Merkel said that countries that repeatedly break euro zone economic rules should be expelled from the Union. Mounting tensions within the bloc and uncertainty about the outlook for a Greek bailout have pushed the euro back down to the lower end of recent ranges and will likely keep its upside very limited in the months ahead.

CHF: The Swiss franc was steady against a generally stronger U.S. dollar and rose to a 17-month peak against the euro after Swiss National Bank board member Jean-Pierre Danthine said yesterday that investors should prepare for higher borrowing costs and market-determined exchange rates. He added that monetary policy can not remain expansionary forever.

Danthine's comments raised the risk that rates could rise when the SNB next meets in June and that moderating deflation risk could prompt the bank to loosen its franc-weakening currency interventions. The franc should continue to push higher, especially against the beleaguered EUR.

CNY: China will send its Vice Commerce Minister to the U.S. next week to ease escalating trade frictions. China's massive trade surplus with the U.S. and the fact that it pegs the yuan currency to the dollar at artificially low levels has fueled escalating calls from U.S. policymakers to label China a "currency manipulator" and slap Beijing with trade duties. While international pressure is not likely to result in any adjustment in China's economic policies, its red-hot economy and rising inflation will likely push Beijing to slowly allow its currency to appreciate later this year.

CAD: Canada's CPI rose by 0.4% in February, exactly as expected. However, core CPI, which excludes volatile food and energy prices, rose to 2.1% year-over-year, well above forecast for 1.7%. Retail sales rose by 0.7% in January, higher than the 0.6% last month. Ex-autos, retail sales soared by 1.8% month-to-month, three times the consensus forecast.

The hotter-than-forecast inflation data and strong retail sales figures sent the CAD to fresh highs across the board. Investors now see increasing risk for the BOC to raise lending rates sooner than previously expected -- possibly as early as July.
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 here. 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.