Dollar Rises to One-Year High vs. Euro

By Joe Manimbo of Travelex.

The U.S. dollar rose to a new one-year peak against Europe's embattled common currency as growing worries about the continent's debt crisis continued to unsettle investor sentiment. The euro's losses have accelerated this week on concerns Athens' debt troubles will not be confined to Greece. Already this week, the euro has shed about 3% against the safe-haven dollar, while it's down more than 9% in 2010.

The prospect of a widening debt crisis in the eurozone rattled investors worldwide on Tuesday, fuelling a flight to quality towards the U.S. and Japanese currencies. Public strikes around Athens this week have reinforced worries that Greece will not be able to implement austerity measures that are needed to help shrink its debt load.

The British pound slipped to a five-week low against the dollar, though it rose to a near nine-month peak against the broadly weaker euro. Political uncertainty ahead of a national election on Thursday in the U.K. should keep the pound vulnerable in coming sessions. The Canadian dollar neared a six-week low against its U.S. rival, pulled lower by the sharp decline in market sentiment on worries about a growing debt crisis in Europe that has roiled financial markets.

Investors on Wednesday will focus on U.S. data on the jobs market and the key services sector which accounts for the majority of U.S. economic activity.

EUR: The single currency tumbled to a fresh April 2009 low against the dollar overnight as worries of a deepening fiscal debt crisis in Europe badly tarnished euro sentiment. Despite the latest efforts by European officials and the International Monetary Fund to come to Greece's rescue, investors are increasingly distancing themselves from the euro on fears other vulnerable regions in the bloc such as Portugal and Spain might be next in line to seek a hefty financial bailout.

Although the European Union and the IMF agreed on a 110 billion euro package for cash-strapped Greece, investors fear that Athens won't be able to successfully implement tough austerity measures designed to get its debt load under control. Violent protests in Athens this week underscored the public's resistance to government plans to raise taxes and reduce salaries.

For the most part, Greece headlines have overshadowed data from the 16-nation bloc. Retail sales in the zone were flat in March, below the forecast for a 0.2% increase.

GBP: The British pound turned in a mixed overnight performance, falling against the dollar though it gained more ground on the besieged euro. Consequently, sterling kept near a five-week low against the dollar and a nine-month high against the euro. The pound should take its near-term cue from a national election in the U.K. Thursday. The pound's best chance at a bounce off its recent lows would come if the tightly contested election ends with the winner gaining a decisive victory which would lower the odds of a hung parliament.

NOK: Norway's central bank, as expected, increased its key benchmark interest rate by 25 basis points to 2% on Wednesday which helped the crown firm slightly off a recent five-week low against the dollar. In a statement after its rate decision, the Norges Bank hinted at more tightening in the months ahead as the Norwegian economy has shown increased signs of improving.

USD: Challenger, Gray & Christmas reported that layoffs by the global outplacement consultancy fell 43% in April to 38,326 from 67,611 the prior month. The upbeat news on the U.S. jobs market was bolstered by another report that showed private-sector employment, as reported by payment processor ADP, rose by 32,000 in April, a bit higher than forecasts.

ADP also upwardly revised its last report to show a creation of 19,000 jobs compared with an initial reading of down 23,000. Although both reports are not considered reliable indicators for Friday's government jobs report, they still point to a gradual improvement in the labor market which is adding to recent optimism on the U.S. economy and supporting the dollar.

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