The U.S. Dollar rallied against the majority of its peers and traded close to a two-year high versus the shared currency on fresh Euro region concerns which prompted a flight to safety. New reports showed that six different regions in Spanish may ask for financial assistance from the central government while two more requested a bailout over the weekend. Risk appetite continued to decline as the International Monetary Fund indicated that it will no longer provide Greece with rescue aid as it has become apparent the current government will not fulfill its pledge to reduce the debt to 120 percent of the GDP by 2020. Yesterday was a light day on the data front and the U.S. only released the Chicago Fed National Activity Index which showed a drop of -0.15. The Canadian Dollar slipped to the lowest level in 11 days against the U.S. currency on speculation the crisis in the Euro-zone is deepening, especially since Spanish bond yields reached 7.5 percent. The Loonie fell against the majority of its counterparts after crude oil plummeted more than $3 per barrel.
The Euro weakened below its lifetime average versus the U.S. Dollar following news that Spanish borrowing costs climbed to 7.53 percent, a rate that’s considered unsustainable. This took place as Murcia and Valencia, two of the nation’s autonomous regions, announced that they need financial assistance. And if this wasn’t enough, risk appetite took another hit after Germany’s Economy Minister suggested that Greece won’t be able to comply with its bailout requirements. The British Pound declined in tandem with the shared currency on renewed worries Spain may seek an international bailout now that many of its autonomous regions have indicated that they need aid. Even the Sterling’s appeal as an alternative to the Euro assets did not help the British currency, possibly due to concerns the country’s GDP reports will reveal a drop. The greenback traded at a 19-month high versus the Swiss Franc on fears the Euro region’s debt crisis will worsen.
The Yen continued to rally as demand for refuge increased on worries E.U. leaders are failing to manage the crisis. However, the Yen remained somewhat lower than the greenback on speculation the Bank of Japan may intervene in order to lower the value of the Japanese currency.
Lastly, in the South Pacific, the Australian and New Zealand Dollars weakened for a second day after Asian stocks declined as investors grew concerned the Euro region’s debt crisis is taking a turn for the worst. The Aussie Dollar traded lower against the Yen in anticipation of this week’s data which is predicted to reveal that the nation’s inflation eased, thereby increasing the likelihood the Reserve Bank will cut interest rates. The Kiwi fell against all of its peers following a hike in Spanish yields.
EUR/USD- No More Aid For Greece
The Euro traded at the lowest price in over two years versus the U.S. Dollar on increased worries over the crisis in the Euro region. According to analysts, investors are growing concerned now that the Troika have agreed to meet today in Athens to discuss whether Greece will be able to live up to the requirements set for the nation as a condition for receiving financial aid. Market investors are also worried Spain will require a full-scale bailout and Greece may exit the Euro bloc. The Euro managed to pare some of its losses versus the greenback after the IMF indicated it would conduct talks with the Greek government in an effort to get the country back on track. On the data front, the E.U. Consumer Confidence posted at -21.6 in July after it had printed at -19.8 in June.
GBP/USD- Sterling Falls With Euro
The British Pound slipped in tandem with the 17-nation currency on renewed fears Spain may require a bailout as two of its autonomous regions requested assistance from the central government. The U.K. has shrugged off all of the recent lackluster data such as the hike in public sector borrowing, suggesting the government isn’t sticking to its austerity measures. The Sterling traded lower against the U.S. Dollar as Spanish bond yields climbed above 7.5 percent. There were no economic releases but analysts believe investors will remain focused on what happens in the Euro region.
USD/JPY- Yen Continues Rally
The Yen continued to advance versus the majority of its peers as demand for refuge increased in the market. The Yen was up slightly against the greenback as investors speculated the Bank of Japan will intervene, especially after the country’s Finance Minister, Jen Azumi, issued another statement suggesting bank officials are monitoring the situation closely and will do what’s necessary to lower the value of the Yen. But the Japanese currency remained strong as analysts indicated there may not be enough funds to bailout Spain and this may trigger a global financial crisis. The Yen reached near intervention levels; however, strategists predict the greenback may gain as investors fear another intervention.
AUD/USD- Aussie Declines Despite PPI
The Australian Dollar fell for a second day against its American counterpart shrugging off the better than anticipated Producer Price data as flight from risk increased in the market. The Australian currency remained weighed down as China suggested its economy may be slowing down. According to official reports issued by the Australian Bureau of Statistics, PPI increased at a seasonally adjusted 0.5 percent in the second quarter of 2012.
Today’s economic calendar shows that the Euro region will release Services and Manufacturing PMI. The U.K. will report on BBA Mortgage Approvals. Canada will issue data on Retail Sales and Core Retail Sales. Japan will announce the Trade Balance. Australia will publish the Trimmed Mean CPI and CPI. And New Zealand will report Trade Balance. In the U.S., Federal Reserve Chairman Ben Bernanke will deliver a speech.