Greek Election Sends Euro Sliding

The dollar pared some gains overnight, slipping from an 11-year trade-weighted high as investors, who have bid the dollar sharply higher over recent weeks, took a breather ahead of a busy week of central bank activity and economic data. The greenback slipped as investors looked to flatten their books a bit ahead of the Fed’s two-day FOMC meeting, which concludes on Wednesday. Key for the dollar’s continued strength will be the extent to which the Fed sticks to its previous statement, which focused on the improving domestic backdrop and largely looked past macroeconomic headwinds and uncertainty. A Fed statement that continues to characterize downward pressure on inflation as transitory and minimize the impact of a stronger dollar on the recovery will likely keep the outlook for a mid-2016 rate hike on track and likely keep the greenback broadly supported.

The euro tumbled to a new 11-year low against the greenback after the leftist Syriza party swept to power in Greece’s weekend election. The party’s resounding victory, while short of an outright majority, seriously raises the risks of a debt showdown between Athens and the EU/IMF over the nation’s bailout terms, which Syriza’s 40-year old leader and Greece’s new Prime Minister Alexis Tsipras labeled as “catastrophic austerity” and causing Greece “humiliation and suffering”.  While the euro has rebounded from its lows, tough comments from Greece’s new leadership regarding the terms of its EU/IMF loans could see the euro push lower.

The British pound found some support overnight after a BOE Monetary Policy Committee member said that if U.K. inflation rises, rates may have to increase sooner than investors are currently pricing in. The pound’s direction remains heavily driven by fluctuating expectations for the timing of a BOE lending rate hike.

The Aussie recovered from a new five and a half-year low and the kiwi bounced off of a three-year trough overnight.

 

USD: The dollar slipped from an 11-year high against a basket of its major rivals overnight as investors flattened their books ahead of this Wednesday’s FOMC monetary policy statement. Investors are keen to see if the Fed is becoming any more concerned about macroeconomic headwinds and if the outlook for a mid-2016 interest rate hike remains on-track. The most recent Fed statement was notable not only because it modified its “considerable period” language, but also because it continued to characterize the oil-driven decline in inflation as “transitory” and continued to downplay the negative impact of a stronger dollar on the U.S. recovery. The fact that the Fed still saw the U.S. economic recovery as being able to withstand the global economic headwinds plays into the notion of the divergent growth and monetary policy outlook that has been at the heart of the dollar’s massive rally. Any signs that the Fed is becoming more cautious about 1) a stronger dollar 2) plummeting oil prices 3) persistent below-trend inflation 4) a global economic slowdown 5) increasing global market volatility could suggest a mid-year rate hike may be at risk and would likely send the dollar lower.

 

EUR: The euro slid to a new 11-year low against the dollar after the leftist and anti-euro Syriza party enjoyed a resounding victory in Greece’s weekend election. The party won 149 seats in the 300- seat parliament, just short of the 151 needed for an outright majority, but still enough to partner with another fringe anti-establishment party to form a majority coalition. The result sets the stage for a potentially dangerous showdown between Athens and the EU/IMF over the terms of the nation’s five-year old bailout. Syriza’s 40-year old leader and new Greek Prime Minister said in his victory speech that the nation “leaves behind catastrophic austerity, fear and authoritarianism”. The possibility of Greece refusing to honor the terms of the previous government could result in a period of heightened market volatility, possibly a default on its debts and maybe even an exit from the euro zone. The Greek election has come to be seen as a referendum on austerity and could embolden other anti-establishment movements in Italy, Spain and Portugal. Traders will be watching for any market-moving comments from Greece’s new leadership.

 

GBP: Sterling bounced against the dollar overnight after a BOE Monetary Policy Committee member said a rebound in inflation could cause the BOE to raise rates sooner than markets are currently pricing in. The comments come amid expectations that the BOE will not raise rates until 2016 following the latest CPI report, which showed consumer prices in the U.K. fell to a decade low in December.

 

NZD: The New Zealand dollar rebounded off of a three-year low against the greenback ahead of this week’s RBNZ meeting where the bank is likely to abandon its policy tightening bias.  

Euro Slides to 11-yr Low on ECB QE

The dollar rocketed to a new 11-year high against a basket of its major rivals overnight following the European Central Bank’s widely expected announcement that it will begin buying government bonds of euro zone economies. The program, known as quantitative easing, is designed to flood the 18-member bloc’s economy with cheap liquidity, keep lending rates […]

Continue Reading »

Euro Sinks After ECB QE

The dollar was largely steady overnight ahead of this morning’s closely watched announcement on monetary policy from the European Central Bank. As expected the ECB left its key lending rates unchanged and said it will announce additional monetary measures at its 8:30am ET press conference. Investors expect the bank to embark on an aggressive campaign […]

Continue Reading »

Dollar Pares Gains Ahead of ECB

The dollar was on the defensive overnight as investors looked to square up positions ahead of tomorrow’s all-important ECB Governing Council meeting. The greenback had rallied to an 11-year peak against the dollar late last week and was broadly stronger this week as well, but is paring some of those gains ahead of tomorrow’s announcement […]

Continue Reading »

Dollar Near 11-yr Trade-Weighted High Amid Historic Volatility

Following a day of historic market volatility, investors took time to assess the damage from yesterday’s surprise move by the Swiss National Bank. Yesterday, the SNB shocked global markets by announcing that it would abandon its three-year old cap for the Swiss franc against the euro, which kept EUR/CHF from falling below the rate of […]

Continue Reading »

Swiss Franc Soars on Historic Central Bank Move

The global currency markets were roiled by a surprise move by the Swiss National Bank overnight, which abandoned its three-year old ceiling for the franc against the euro. The SNB had implemented a ceiling for the franc against the euro during the height of the 18-member bloc’s debt crisis, which saw investors flood into safe-haven […]

Continue Reading »

Dollar Pares Gains After Slide in Retail Sales

The dollar put in a mixed performance against its major rivals amid a backdrop of mounting worries about the global economic outlook. Late yesterday, the World Bank revised down its outlook for the global economy for both 2015 and 2016, citing challenges in the euro zone, Japan and major emerging markets like China. The resulting […]

Continue Reading »

Dollar Gains, Despite Slump in Yields

The dollar firmed against most of its major rivals overnight, despite a slide in U.S. Treasury yields. The greenback continues to outperform most of its major rivals amid expectations that the U.S. economy will continue to lead in its recovery and that the Federal Reserve will likely raise U.S. borrowing costs at some point around […]

Continue Reading »

Dollar Recovers from Post-Payrolls Selloff

The dollar was generally firmer to start the week following a U.S. payrolls-induced selloff late last week. The dollar slipped against most of its major rivals on Friday after the closely watched U.S. employment report for December showed a better than expected rise in the number of American payrolls last month but importantly, revealed an […]

Continue Reading »

Dollar Gains After Another Strong Payrolls Number

The dollar initially rallied to session highs against its major rivals after data this morning showed a net increase of 252,000 new jobs in December and a drop in the unemployment rate to 5.6%, its lowest since 2008. While the strong December jobs numbers combined with upward revisions to October and November are positive, the […]

Continue Reading »