By Omer Esiner of Travelex

The U.S. dollar fell further from last week's 10-month trade-weighted high as investors unwound defensive positions in the greenback in search of higher returns in riskier assets.

Last week's agreement on a financial backstop for indebted Greece helped reduce investors' nervousness, prompting a pullback in some of the market's bets against the single currency, which had reached record levels last week. While the euro may benefit further over the near term from short-covering and position-squaring, its longer-term outlook should remain undermined by the high level of uncertainty about Greece and other peripheral eurozone nations.

With Europe, the U.K. and Canada closed for trading on Good Friday, volumes should dry up toward the end of this week. Still, the main event for markets remains Friday's U.S. jobs data for March. Many are forecasting the first major rise in net job creation this month, a development that would likely revive talk of the Federal Reserve leading other major central banks in monetary policy normalization. The U.S. dollar's downside should remain somewhat limited ahead of the even risk of Friday's all-important employment report.

The rebound in commodities and risk appetite saw the dollar bloc currencies from Australia, New Zealand and Canada outperform. The Aussie was particularly well bid after hawkish comments from the central bank governor underscored the outlook for another rate hike next week.

Investors await U.S. personal income and spending numbers later this morning.

EUR: The single currency firmed further off of its recent lows against the greenback and Canadian dollar overnight, benefiting from a continued reduction in investors' bets against it. Market positioning against the euro had reached a record peak last week amid heightened concerns about the outlook for Greece. The EU's ability to reach an agreement on a financial backstop for Athens helped reduce concerns about a potential Greek default and prompted many to trim some short EUR positions from their portfolios.

While the EUR could find some more demand over the very short term, its longer-term outlook remains clouded. Similar debt problems in other peripheral countries should keep sovereign credit risk high on investors' list of worries over the months ahead. Moreover, the needed fiscal tightening to bring budget deficits in the eurozone down will ultimately hurt growth and postpone any policy normalization from the European Central Bank. Consequently, investors continue to view EUR rallies as selling opportunities. Data overnight showed a stronger-than-expected rise in eurozone economic sentiment in March, figures that were consistent with a brightening outlook for the 16-member bloc's recovery.

GBP: Sterling benefited from the broad improvement in investors' risk appetite overnight, despite some mixed reports on the state of the economy. Data showed a larger-than-expected drop in British mortgage approvals in February, which hit their lowest level in nine months. The figures dampened optimism about the nascent recovery of the U.K.'s troubled housing market.

Separate data, however, showed a rise in net lending to households last month. Consumer credit rose from a revised 349 million pounds to 528 million pounds.

Sterling should remain generally supported as long as issues regarding sovereign credit risk remain on the backburner. However, its longer-term trend should remain a downward one, given the potential for the soft U.K. economic recovery to keep the Bank of England sidelined longer than its major counterparts. Public finance concerns and mounting uncertainty ahead of the general election later this year should keep the pound's upside very limited in the months ahead.

AUD: The Aussie, along with its dollar-bloc counterparts, enjoyed further gains overnight amid an improving backdrop of risk appetite and moderating sovereign credit worries. The AUD also benefited from hawkish comment from Reserve Bank of Australia Governor Glenn Stevens who warned against speculation in Australia's soaring property market. Stevens said that rates had been too low and advised against betting that home prices would go up forever. His hawkish comments added to speculation for another 25 basis point rate hike when the RBA meets again next week.

USD: U.S. personal spending rose by 0.3% month to month in February, in line with expectations and the fifth straight month of healthy growth in spending. Personal income was flat last month. The figures showed a return to a pattern of Americans' spending increasing faster than income. A key gauge of inflation within the report showed that price pressures remain benign.

The dollar firmed toward highs of the session against the Japanese yen but was largely unmoved in its other major crosses immediately after the figures.

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.

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