The U.S. dollar rose to a three-week high against a basket of its major rivals overnight as mounting uncertainty about Greece’s ability to secure the latest tranche of its EU/IMF-backed bailout sent investors rushing for the relative safety of the dollar. News yesterday that EU finance ministers would once again postpone a decision on whether or not to extend Athens the aid needed for it to avoid a messy debt default sent risk appetite, which has been a key driver of strength in most asset markets this year, sliding. The greenback stands to benefit further as more of the investor optimism that has characterized trade for much of 2012 continues to fade.
Despite the fact that Greek lawmakers identified another 325 million euros of budget cuts and signed a pledge supporting continued austerity measures (as EU officials had demanded), euro zone finance ministers said they would not decide on the fate of Greece’s bailout until Monday February 20th at the earliest. Growing animosity and distrust between Athens and its EU/IMF/ECB lenders has undermined these debt talks at every turn. The dangerous game of posturing and brinkmanship could result in Greece missing its next debt payment in March, an event that could send fragile global markets into a tailspin and perhaps see other deeply indebted euro zone nations default as well. The euro’s breach of key technical support against the dollar as well as the mounting uncertainty about the fate of Greece should keep it biased lower.
Dollar/yen breached key resistance to hit a new three and a half week high overnight. This week’s Bank of Japan monetary policy easing in response to its rapidly contracting economy in Q4 has undermined the yen’s appeal against the greenback and could see it continue to suffer over the coming months.
Strong jobs growth in Australia helped limit its losses against the otherwise stronger U.S. dollar overnight.
EUR: The apparent breakdown in talks between the EU/IMF/ECB and Greece’s lawmakers sent the euro sliding below key support levels to three-week low against the greenback. The latest postponement in a decision on Greece once again highlighted the growing mistrust between euro zone paymasters like Germany and Greece. EU officials put off a decision on Greece until Monday after a three-hour long teleconference yesterday, citing concerns about mechanisms by which EU officials can monitor and enforce the implementation of agreed upon austerity measures. On balance, the EU remains skeptical that Greece, who has repeatedly fallen short of its promises, will follow through with promised reforms, especially after an election in April. This skepticism was highlighted by German Finance Minister Schaeuble calling Greece and “endless pit”. The wrangling and posturing could actually lead to Athens missing a debt payment in late March, which would not only shake fragile global markets but could also see other indebted euro zone stats opt for default over continued austerity as well. The mounting uncertainty should see the euro continue to struggle.
JPY: The Japanese yen fell to a three and a half-month low against the U.S. dollar overnight, weighed down by this week’s BOJ meeting, which resulted in another increase in the central bank’s JPY-negative asset purchase program. Dollar/yen’s breach of its 200-day moving average earlier this week added to the pair’s improving technical backdrop as well. Another key liability for the yen is the apparent structural deterioration in Japan’s balance of trade, which had been a historical pillar of support for the nation’s economy and the yen. While the yen could find safe-haven support if conditions in Europe continue to worsen, its outlook has meaningfully worsen as a result of recent events and domestic economic data.
AUD: While the dollar bloc group of currencies suffered from the broad pullback in investor risk appetite, the Aussie’s downside against the greenback was considerably more limited. Data overnight showed the Australian economy added 46,300 new jobs last month, eclipsing forecasts for an increase of 10,000. Combined with a surprise drop in the unemployment rate, the data prompted investors to pare back expectations for monetary policy easing from the RBA later this year.
USD: Weekly jobless claims fell to 348,000 last week, slightly better than the forecast of 365,000. It was the lowest level of initial claims since March‘08. January’s PPI rose by 0.1%(m/m), cooler than the 0.4%(m/m) forecast while housing starts rose by 1.5%(m/m), slightly worse than expected. On balance, the strong claims data has helped underpin some risk appetite and saw the USD pare some of its overnight gains. Against the yen however, the USD as at fresh session highs.