The U.S. Dollar benefitted yet again from risk aversion in the market as talks aimed at forming a coalition government in Greece failed. Prospects of another election reignited concerns the country won’t be able to reduce spending as required by the bailout agreements and will inevitably have to exit the E.U. On the data front, U.S. Retail Sales remained steady in the month of April while Core Retail sales rose. According to the reports, gasoline prices fell 2.6 percent, a major factor which weighed on the headline CPI. The figures which showed a 0.1 percent increase failed to fuel speculation of further quantitative easing. Other news revealed that manufacturing in the New York area expanded more than forecast. The remainder of the week is light in terms of economic reports and later today the U.S. will release information on Housing. The Canadian Dollar rallied versus the majority of its peers as its neighbor issued positive economic data. The Loonie traded mixed for the remainder of the day against its American counterpart after talks aimed at forming a new government in Greece broke down, suggesting the Euro Zone debt crisis is likely to worsen. In addition, crude oil, Canada’s biggest export, dropped for the third consecutive day.
The Euro traded close to a four-month low versus the U.S. Dollar after all efforts to form a Greek government failed, spurring concerns the nation will leave the Euro bloc. However, the shared currency managed to erase some of its losses after the E.U. Office of Statistics in Luxembourg announced that Gross Domestic Product remained unchanged for the first quarter of 2012. Late in the day, investors sold off the Euro as they predicted Greece will leave the Euro-zone while the crisis worsens. And while fear dominated sentiment and investors sought refuge, they chose the British Pound as an alternative to the Euro, causing it to trade at the highest level versus the Euro since 2008. The Sterling declined against the U.S. Dollar as demand for safe havens increased due to a break-up in talks between Greece’s rival political parties.
The Yen also gained against the 17-nation currency on worries that Greece will default and exit the E.U. It traded lower versus the U.S. Dollar as better than expected data reinforced the possibility the Federal Reserve will refrain from implementing further quantitative easing at this time. According to analysts, as the crisis in the Euro region worsens, the Yen will likely gain.
Lastly, in the South Pacific, the Australian Dollar rebounded from five-month lows versus the greenback as a technical indicator revealed that the currency depreciated excessively. The New Zealand Dollar plummeted to a four-month low on concerns Greece may leave the Euro region. And Minutes from the most recent Monetary Policy Meeting revealed that Australia’s central bank reduced the cost of borrowing money in order to fuel growth and counteract the effects of a hike in mortgage rates in order to boost Consumer Confidence.
EUR/USD- Talks Produced No Results
After failed talks, Greece seems to be inching closer to exiting the Euro region. The breakdown of the talks aimed at forming a coalition government continued to weigh on the Euro and it’s now likely that Greece will hold another election. According to Germany’s Finance Minister, Wolfgang Schaeuble, this is basically a vote on “whether Greece stays in the Euro region.” Meanwhile, anxious voters withdrew more than $893 million from Greek banks on fears the country won’t receive the bailout funds. The shared currency gained somewhat as economic data showed that German GDP climbed a seasonally adjusted 0.5 percent in the first three months of 2012. However, the Euro region’s GDP remained stagnant in both YoY and QoQ. Italy’s growth was lower than forecast and the ZEW Survey of Investors dropped to 10.8 when 19.0 had been predicted.
GBP/USD- Pound Falls On Failed Talks
The British Pound remained under pressure versus the U.S. Dollar as risk aversion reigned following failed talks between political parties who attempted to negotiate on the creation of a Greek government. It’s almost certain Greece will have to hold new elections in June; however, if the anti-bailout party turns out to be victorious, it’s likely the country will default and exit the Euro region. According to the economists, this will bring enormous losses to those holding Greek debt and will have tremendous impact on the E.U. as well as the U.K., its biggest trading partner. On the data front, the Trade Deficit contracted less than forecast in March, and this caused the Pound to weaken further against the greenback. The Pound rallied to a 3 ½ year high against the Euro as investors considered it a safer choice over the Euro.
USD/JPY- Yen Gains On Exit Woes
The Yen weakened against the U.S. dollar following the release of positive U.S. economic data, but strengthened versus the Euro on fears Greece will leave the Euro monetary region. Japan’s stock market declined as the prospects for the Yen dampened the likelihood of higher earnings and exporters saw their gains begin to decline. According to analysts, it’s possible that the Yen will continue to advance as the crisis in the Euro-zone worsens. They believe the Pound will eventually fall and the Yen will capitalize on its safe haven status.
USD/CAD- Economic Gains Boost Loonie
The Canadian Dollar advanced versus the majority of its peers as reports showed gains in its economy and as the U.S. released better than expected data. The currency traded up and down after Greece announced the break-down of talks aimed at forming a new government. And the currency remained under pressure as crude oil declined again. Canada’s currency benefitted from early news indicating that sales of existing homes went up in April by 0.8 percent. But it erased those gains as Greek President, Karolos Papoulias met with rival political leaders and failed to reach an agreement to form a coalition government. He called for another meeting to be held today at which time a caretaker government will be formed.
Today’s economic calendar shows that the U.K. will report on Claimant Count Change and the Average Earnings Index. Furthermore, the Bank of England will publish its Inflation report. The E.U. will release data on Core CPI, CPI and the Trade Balance. The ECB’s President, Mario Draghi is scheduled to deliver a speech. The U.S. will issue figures on Industrial Production, Housing Starts and Building Permits. In addition, the FOMC will publish its Policy Minutes. Canada will deliver metrics on Manufacturing Sales. New Zealand will release PPI Input and Output. And lastly, Japan will announce its GDP and GDP Price Index.