By Omer Esiner of TravelexThe dollar firmed against most of its major rivals overnight as continued concerns about Greece's debt crisis weighed on the euro and undermined investors' appetite for risk. Wrangling among eurozone officials continues to highlight the lack of cohesion within the bloc and raises the risk that policymakers will not be able to reach an internal solution to Greece's debt woes at this week's summit of EU leaders. Such a scenario could result in Athens seeking assistance from the IMF. Uncertainty ahead of the summit, scheduled for Thursday and Friday, has kept the single currency under pressure and dampened some demand for riskier assets like commodities and emerging market currencies. Sterling resumed its decline overnight after consumer inflation data undershot market expectations. The data suggested that inflation in the U.K. may have peaked over the near term and brought back into the spotlight the long list of headwinds facing Britain's economy and the pound. EUR: The euro fell back toward a three-week low against the greenback and a 30-month trough against the Canadian dollar, broadly undermined by uncertainty ahead of this week's summit of EU leaders. German Chancellor Angela Merkel, who faces intense domestic opposition to any assistance to Greece, continues to say that a bailout for Athens is not even to be a topic of discussion at the summit. Merkel faces an election later this year. Her position prompted European Commission President Manuel Barroso, to call on her to "rise above domestic politics" to avoid risking more damage to the euro. Greek officials meanwhile, continue to threaten to seek IMF assistance if an internal eurozone resolution is not reached this week. All the bickering has highlighted the lack of cohesion within the bloc and has raised questions about the viability of a monetary union without political unity. Investors have pushed the single currency roughly 10% lower against the dollar in 2010 and are likely to continue to penalize the euro in coming months. Even in the unlikely event that Europe's debt issues fade, the fiscal tightening needed to get budget deficits down will undermine already weak growth and keep the ECB sidelined longer than other major central banks.
GBP: The pound resumed its declines against most of its major rivals after enjoying a short-lived rally yesterday. Investors had pushed the pound broadly lower over recent sessions, only to square their positions yesterday ahead of key inflation data released overnight. Data showed that British consumer prices rose by 0.4% month over month in February, just under the 0.5% forecast. Year over year, CPI fell from 3.5% to 3.0% last month, cooler than the 3.1% forecast. The steep drop in yearly inflation suggests that prices may have peaked over the near term. Recent readings of year-over-year CPI have been exaggerated by very low baseline effects and one-off items like the rise in the U.K.'s VAT tax. A drop in CPI highlights the fact that the Bank of England is under little pressure to begin raising lending rates. Separate data showed a healthy rise in mortgage approvals and mortgage lending in February. Sterling should continue to suffer from its weak economic recovery and from mounting uncertainty ahead of a general election later this year. CAD: Canadian leading indicators rose by 0.8% month over month in February, exactly in line with market expectations. Steep improvement in sectors like manufacturing and housing pushed the overall value of leading indicators higher last month and continue to drive the rebound in Canada's broader economy. The loonie, while off of a 20-month peak against the dollar, remains near the higher end of its ranges, benefiting from domestic economic strength, which may push the Bank of Canada to normalize rates sooner than previously expected. The nation's exposure to improving U.S. demand and the relative health of Ottawa's fiscal balance sheet have also helped push the loonie higher across the board.