FOREX : Euro Under Pressure As Greek Bonds Slump
The euro is slumping against the dollar Wednesday morning as Greek bond prices tumble and their yields surge higher against their German counterparts.
The dollar is split against other major currencies, with little change against the yen, a retreat against the Canadian dollar and a partial rebound against the U.K. pound.
As talks between Greece, the European Union and the International Monetary Fund get under way in Athens, after a delay of two days, investors are focusing on the many uncertainties and are shunning Greek bonds and the common European currency.
Although the EU and the IMF have pledged a total of EUR45 billion to Greece, the structure and conditions of any bailout remain unclear.
"Greek bonds are melting down, today, but there are really no specific new developments," said Adam Cole, chief currency strategist at RBC Capital Markets in London. "It's seems no news is bad news for Greece," he said.
Greek-German 10-year yield-spreads surged above 5.0 percentage points in low-volume trade Wednesday, reaching 5.17 percentage points shortly after 7 a.m. EDT (1100 GMT). This yield spread means that Greece pays a yield of 8.24% to investors on a 10-year bond.
Greece faces the prospect of having to repay EUR8.5 billion in bonds that mature on May 19 and the government is weighing how to present a decision to the public that the country will seek financial aid from the EU and the IMF.
"The euro is likely to trade with a downward bias until the debt talks are over," said Jessica Hoversen, fixed-income and foreign exchange analyst at MF Global in Chicago.
Wednesday morning, the euro is at $1.3376 from $1.3445 and at Y124.59 from Y125.23, according to EBS via CQG. It had made it up to $1.3447 and Y125.55 earlier in the day. The U.S. dollar is at Y93.13 from Y93.15 and at CHF1.0712 from CHF1.0682. The British pound is at $1.5388 from $1.5372.
The ICE Dollar Index, which tracks the greenback against a trade-weighted basket of currencies, was at 81.277 from 81.015.
The strategy team at Credit Suisse Group said there are three key questions the market will first be looking for clarity on regards to the Greek situation: first, whether Greece has made an actual request for aid; second, the exact role of the IMF; and third, whether the commitment of EU governments is still in doubt.
Although European equity markets started the day higher and the euro was able to make some gains, both lost their shine as the markets focused more on events in Athens.
The pound, meanwhile, gained after the number of U.K. jobless benefit claimants fell more than the market anticipated last month, by 32,900 rather than the 10,000 expected.
"The only other notable standout is sterling outperformance once again, which is driven by economics rather than politics for once, and that's the better-than-expected labor market data this morning," said RBC's Cole.
This sign of economic improvement added to relatively hawkish comments from the latest Bank of England minutes, released at the same time. These suggested that some monetary policy committee members are concerned about the recent rise in inflation.
The minutes also showed that some members think that the downside risks to the economy have eased. Sterling rose to $1.5435, its high for the day, after the data and the minutes were released.
The pound subsequently relinquished much of its gains against the dollar, but remained higher against the euro. The yen wasn't helped by reassurances from Bank of Japan deputy governor Kiyohiko Nishimura that the central bank is keeping all policy options open.
Nishimura made this comment after making a positive assessment of the economy and the outlook for deflation. Bank officials have come under intense pressure from the government in recent weeks to keep monetary policy loose.
Canada Morning
The Canadian dollar is holding its perch above parity with the U.S. dollar Wednesday morning, one day after the Bank of Canada hinted at the possibility of a June interest-rate increase.
The U.S. dollar was at C$0.9967 early Wednesday, from C$0.9993 late Tuesday. Canada's strong domestic story enabled it to outperform commodity counterparts such as the Australian dollar.
"In the last hour or so, markets have reverted to selling riskier currencies, and selling risk as the equity futures have all gone into the red, and the Canadian is still relatively robust, so I think it is the domestic story which is really benefiting Canada at the moment," said RBC's Cole.
The currency was little affected by news that wholesale trade in Canada unexpectedly declined by 1.2% in February, its first decline in four months.
Market focus will turn again to the Bank of Canada Thursday, as the central bank releases its Monetary Policy Report.
In the bank's hotly anticipated statement on Tuesday, the central bank lifted its conditional pledge to contain its ultra-low benchmark interest rate at 0.25% until the second half of the year, opening the door to a possible June rate increase.
The Canadian dollar rose above parity with the greenback on Tuesday following the central bank's announcement, making its longest one-day stride since November.
For more info on SoftroomFX recommended broker, go to http://www.fxprimus.com