Greek Bond Sale Falls Short of Expectations
The US dollar gained on the troubled euro for the first time in 3 days after Greece’s bond sale fell short of expectations. The euro fell after the Greek bond sale prompted demand for less than half of the debt offered. The euro and dollar also fell against commodity linked currencies as oil and commodity prices rose. Sacha Tihanyi of Bank of Nova Scotia stated, “The euro is obviously still suffering. Canada is an excellent country from the sovereign-risk perspective, and Australia is very good as well.” Details of the EU IMF agreement remain unclear prompting investor concern. The greenback gained 0.6% on the euro trading at $1.3409 in morning New York trading. The dollar gained 0.4% on the yen trading at 92.80. Amazingly enough, the pound was the best performer and gained 0.7% vs. the dollar and last traded at $1.5101 after hitting a high of $1.5127. The euro hit a two month high against the yen but pared early gains as lingering concerns about Greece’s fiscal health linger.
Euro Zone Debt and ECB Rates Cause Concern
Analysts see limited euro gains due to euro zone debt problems and the perception that the ECB will not raise rates anytime soon. Daragh Maher of Credit Agricole CIB in London stated, “The uncertainties surrounding Greece and wider fiscal issue are still a problem.” The euro has gained about 1.5% against the dollar since last Friday when EU leaders announced a rescue plan for Greece. Commodity linked currencies gained as a rise in commodity prices boosted demand for the Aussie, Kiwi and Canadian dollars. The New Zealand dollar hit its highest vs. the greenback in a week after a government report showed that home building rose in February for the first time in three months. Imre Speizer of Westpac Banking Corp stated, “The sentiment around commodity currencies is more bullish this week and the data in both Australia and New Zealand is tracking pretty well.” The Aussie gained 0.2% vs. the greenback trading at 91.92 U.S. cents. The Kiwi remained at 70.98 U.S. cents. So far this month the Aussie has gained 1.6% vs. the greenback and the Aussie has gained 2.6%.
Pound Gains for Third Straight Day
The pound gained for the third straight day against the US dollar as reports showed that the UK’s GDP showed better than expected growth. The pound has been pressured by political concerns as investors remain concerned that election results could result in political gridlock crippling the nation’s ability to deal with an 11.8% budget deficit. In London the pound gained 0.7% vs. the dollar trading at $1.5092.
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Euro Trading Volatile
Once again the beleaguered euro hit a 10 month low against the US dollar paring earlier gains in currency markets. Trading remain volatile in advance of today’s EU summit in Brussels, Greece’s ongoing debt crisis and Wednesday’s downgrade of Portugal’s rating by Fitch’s rating agency dragged the euro down in trading sessions. In Asian trading the euro hit an all time low vs. the Swiss franc as disagreements among EU nations on how to solve Greece’s massive debt problems prompted Asian hedge funds to dump the euro. Currency experts believe the euro will continue its decline throughout the week due to disagreement among EU leaders which is making investors nervous. The euro pared earlier losses after a spokesman for the Athens government said that a French-German plan to aid Greece “sends a message of stability.”
IMF Aid Would Be Negative For Euro
Earlier the euro fell after European Central Bank President Jean-Claude Trichet said that the EU needs to take responsibility for other EU states and that International Monetary Fund aid to Greece is “very, very bad.” Camilla Sutton of Bank of Nova Scotia stated, “Trichet said that turning to the IMF would be very difficult. The implication is that an IMF aid package would be negative for the currency. His comments highlight the ongoing uncertainty in the EU, and it’s the uncertainty that’s impacting the market.”
Contingency Plan Developed by France and Germany
The contingency plan developed by France and Germany “satisfies” the Athens government said Greek spokesman George Petalotis. He also said the plan “covers us fully” and EU leaders are expected to discuss the plan tonight. Investors and currency experts remain cautious. Omer Esiner, of Travelex Global Business Payments said, “The market sees a high level of uncertainty until we get details on a plan to bail out Greece, and we’re seeing the euro fall as a result of that. The involvement of the IMF is somewhat of a negative for the euro.” European Union executive and Spanish Prime Minister Jose Luis Rodriguez Zapatero told reporters in Brussels that “We need confidence in the European currency.” European Commission President Jose Manuel Barroso echoed Zapatero’s statement. Barroso also said that he supports the ECB decision to loosen finding and collateral rules. Barroso told reporters, “As you know, according to the (EU) treaties the ECB is fully independent so it was a decision taken by the ECB but it has my full support and the full support of the Commission.” Until the EU agrees on a solution for Greece’s debt woes the euro is likely to remain under intense pressure.
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No EU Solution Expected
The euro once again fell vs. the US dollar and most analysts believe that EU members will not be able to agree on any kind of aid package for Greece during this week’s EU summit. Concerns about Greece’s ability to repay its debts are keeping the euro low in currency markets and are also supporting safe haven dollar buying. The euro was pressured further when it hit an all time low against the Swiss franc. EU leaders have strong disagreements on how to provide aid to the Athens government. German Chancellor Angela Merkel faces fierce public opposition to any Greek bailout and said there will be no decision on aid to Greece at the upcoming EU summit. Failure to resolve Greece’s debt woes combined with stalled euro zone recovery could cause the European Central Bank to postpone raising rates further pressuring the multi nation currency. Joe Manimbo of Travelex Global Business Payments stated, “The risk is for further weakness in the euro if nothing concrete comes out of this summit in terms of financial help to Greece.”
High Borrowing Costs Hurting Greece
Greek Finance Minister George Papaconstantinou has said that the Athens government wants and EU based solution for the nation’s debt crisis and said that high borrowing costs are hampering Greece’s ability to achieve its budget cutting goals. Adding to concerns European Central Bank vice-president nominee Vitor Constancio said that IMF loans may not be adequate to meet Greece’s needs. Ian Stannard of BNP Paribas said, “It is looking increasingly unlikely that there will be an EU aid package for Greece which leaves the euro in a negative position. I expect a test of this year’s low at $1.3435, and if that breaks, a quick move toward $1.3100.” Eurogroup head Jean Claude Junker said he would welcome a meeting of EU leaders in advance of Thursday’s EU summit to discuss Greece’s fiscal problems. Spokesman Guy Schuller stated, “It’s the first time that I hear about such a meeting. Mr. Juncker is part of those member states that favours that (meeting) but thinks it should not be institutionalised.”
France and Germany Hold Talks
Recent news reports say that France and Germany are holding talks designed to devise a joint position on Greece for Thursday’s EU summit. The report states that so far there has been no breakthrough but the talks included a discussion of the possibility of IMF aid for Greece. Germany has recently released some very tough terms for the nation’s support for an EU solution to Greece’s fiscal problems.
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EU Summit to Take Place Next Week
Investors are waiting for the Upcoming EU summit next week and will be looking for signs that could signal the establishment of an EU based lending mechanism that would aid Greece’s troubled economy. Greece’s debt crisis has weighed heavily on the euro since 2009 and is causing a political rift in the Euro zone. Greek Prime Minister George Papandreou has indicated that Greece may seek aid from the International Monetary Fund if EU aid is not forthcoming. Michael Woolfolk of BNY Mellon in New York stated, “The tensions surrounding Greece are escalating. This whole IMF situation has become a game of brinkmanship and the whole uncertainty is undermining the euro.” . French President Nicolas Sarkozy and European Central Bank President Jean-Claude Trichet have warned that the EU may lose credibility unless European leaders agree on a lending solution for Greece. In Germany Chancellor Angela Merkel’s government is adamantly opposed to EU aid for Greece. Merkel told the German Parliament on March 17th that the IMF may be the sole solution to Greece’s debt crisis. Nobel Prize winning economist and Columbia University professor Robert Mundell said that the IMF should be a “lender of last resort” for Greece.
Papandreou Says Greece Will Not Default
Greek Prime Minister Papandreou has said that under no circumstanced will Greece default. Papandreou stated, “Let everyone be certain, Greece will not default, we will not let it default. Greece has a strong government and courageous people. We are returning to the road of economic stability.” Papandreou also warned that speculators are pushing up borrowing costs for the troubled nation and is seeking regulations to curb speculation. Papandreou said, “We are building alliances in and outside the EU. We are convincing our partners for changes to set limits to speculators. We are not asking anyone to pay our debts. We will do this by ourselves. We want to be able to implement all that we have announced and enacted calmly.” Experts predict that Greece’s debt to GDP ratio may hit 120% this year.
Kiwi Best Performer
In a rare piece of good news the Kiwi dollar hit its largest weekly gain on the Aussie dollar. According to Bloomberg the Kiwi has been the best performer last week against most major currencies. A report due next week is expected to show that New Zealand’s economy grew at its fastest pace in two years. Most experts believe that the Bank of New Zealand will raise rates sometime in June. Richard Grace of Commonwealth Bank of Australia. Stated, “Participants are starting to figure that, look, the Bank of New Zealand will raise interest rates in the middle of June according to their current policy guidance. This is why the New Zealand dollar is regaining some strength, because it was severely underperforming as the New Zealand economy went through a soft patch.”
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Experts Predict Dollar Gains
A recent Bloomberg Professional Global Confidence Index showed that most experts believe the US dollar will gain during the next six months and expect the US economy to expand at a faster pace than European and Asian economies. Most economists expect the US Federal Reserve to raise rates before the European Central Bank or the Bank of Japan. The Greek fiscal crisis has also strengthened dollar confidence and most economists expect Greece’s debt woes to continue to undermine the euro. Meg Browne of Brown Brothers Harriman & Co said that, “Growth differentials and interest-rate differentials, and the fact that the U.S. is so far doing quite well compared with the euro-zone” have helped the dollar in currency markets. German Chancellor Angela Merkel and Luxembourg Prime Minister Jean-Claude Juncker said that credit- default swaps need to be regulated to shore up the multi nation currency and prevent a repeat of the Greek debt crisis. Shaun Osborne of Toronto-Dominion Bank stated, “The Greece situation was definitely something that helped the dollar recover. It started to take on a life of its own. Now the markets are waiting to see where we go from here.”
Greece Not Asking for Bailout says Prime Minister
Greece’s budget deficit is now at 12.7% of GDP which is four times what EU rules allow. Last week Prime Minister George Papandreou’s government announced measures designed to save 4.8 billion euros ($6.5 billion USD) and includes higher sales, fuel and tobacco taxes as the government struggles to shave 4 percentage to bring the deficit within EU limits. Greek Prime Minister George Papandreou said that US President Obama is supportive of Greek austerity measures. Papandreou also said after a meeting at the White House that he got a “positive response” from Obama about European efforts to limit market speculation. Papandreou said to reporters, “We’re not asking for a bailout, we’re not asking for financial help from anyone. What we are doing is first of all revamping our own economy. We are taking measures to put our economy on the right path.” US president Obama offered no statement after the meeting.
EU May Prohibit Speculative Credit Default Swaps
European Commission President Jose Barroso said that the EU may consider prohibiting “purely speculative” credit default swaps and German Chancellor Angela Merkel called for a halt to derivatives trading to prevent a repeat of the Greek debt crisis. In a speech two days ago Papandreou warned that the debt crisis in Greece also posed risks for the US as well as the EU. A White House spokesman said that the Obama administration believes that the EU should take the lead in addressing the Greek crisis. Administration spokesman Robert Gibbs stated, “This is an issue for the European Union. We believe they have and possess the capabilities to solve that.”
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Rogoff Predicts “A Bunch Of Sovereign Defaults”
The euro has been pressured by the Greek debt crisis since late last year. In December 2009 Greece suffered two downgrades by Moody’s and Fitch rating agencies. The Greek fiscal crisis has dragged the euro down in currency markets and many investors fear a default by the troubled EU member. Earlier in the month Harvard University Professor Kenneth Rogoff, a former economist for the International Monetary Fund, said that out of control debt may force several countries to default and could force the US to cut spending. It was Rogoff who predicted the failure of several large American banks in 2008. At a forum in Tokyo Rogoff said that following a banking crisis, “we usually see a bunch of sovereign defaults, say in a few years. I predict we will again.” Rogoff said that the United States is likely to tighten monetary policies which would in turn send “shockwaves” through markets. Rogoff also said that US fiscal policy will not be addressed until rising bond yields prompt “very painful” spending cuts and tax increases. At present the US faces an unheard of budget deficit of $1.6 trillion dollars this year.
Rogoff Pessimistic About Europe
Rogoff, who co wrote a history of the current financial crisis in 2009, told the Tokyo forum, “Most countries have reached a point where it would be much wiser to phase out fiscal stimulus. Rogoff said nations would be wise to, “to keep monetary policy soft and start gradually tightening fiscal policy even if it meant some inflation.” Rogoff said that Greece will probably be bailed out by the IMF and not the European Union. Rogoff believes that Greece will develop several austerity measures and that the EU will probably provide Greece with a bridge loan which will not save Greece in the long run. Rogoff stated, “It’s like two people getting married and saying therefore they’re living happily ever after. I don’t think Europe’s going to succeed.”
Rogoff Predicted 2008 Crisis
Rogoff believes that investors will demand higher rates to lend to debtor nations including the United States. According to last November’s IMF forecast the US’s borrowing will amount to 99.5% of annual economic output in 2011.Rogoff said that global recovery and growth will be slow. Rogoff said, “In rich countries — Germany, the United States and maybe Japan — we are going to see slow growth. They will tighten their belts when the problem hits with interest rates.” Rogoff has a reputation for accurate predictions. In 2008 just before the collapse of Lehman Brothers Rogoff warned, “the worst is yet to come in the U.S.” and also predicted the collapse of major investment banks. Rogoff’s assessment of the global financial situation is sobering.
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Euro Hits One Year Low vs. Yen
The euro is now at a one year low against the Japanese yen as investors seek safe haven assets due to the Greek fiscal crisis and US Fed Chairman Bernanke’s sobering assessment of the US economy. On Wednesday ratings agency Standard and Poor’s said it may cut Greece’s rating by a couple of notches by next month. The euro has fallen more than 10% since December 2009 due to concerns about Greece and other EU nation’s ability to pay their debts. The Athens government has proposed several austerity measures causing widespread social unrest. The yen was the big winner in Asian trading as rising risk aversion fuelled a yen rally in currency markets. Lee Hardman of BTM-UFJ stated, “The yen is in favour against the euro on safe-haven demand, fuelled by risk-aversion on concerns over sovereign debt risks of the peripheral euro zone members. A possible Greek ratings downgrade has added further pressure.”
Aussie and Kiwi Under Pressure
The euro declined 1.3% vs. the yen trading at 120.60 yen and against the US dollar the euro traded at 1.3510. High yielders like the Aussie and Kiwi dollars came under pressure due to Japanese stop loss selling. The Aussie lost more than 1% against the yen trading at 79.50 yen. The pound fell to a nine month low vs. the yen and the yen gained about 1% on the US dollar. Paul Mackel of HSBC stated, “The yen does tend to strengthen when times get tough and I would also say it is likely to remain in favour going into the Japanese fiscal year-end.”
Bernanke Offers Grim Assessment of US Labor Market
Fed Chairman Ben Bernanke offered a congressional committee a sobering assessment of the US economy. In testimony offered to the House Financial Services Committee Bernanke cited a weak labor market and tame inflation as reasons for the Fed to keep interest rates low for an “extended period.” The US has lost about eight and a half million jobs during the current recession. About the labor market Bernanke told congress, “Notwithstanding the positive signs, the job market remains quite weak.” Bernanke also told congress that the Federal Open Market Committee (FOMC) is prepared to support the US economy with stimulus measures for ‘some time.’ Bernanke stated, “The FOMC continues to anticipate that economic conditions — including low rates of resource utilization, subdued inflation trends, and stable inflation expectations — are likely to warrant exceptionally low levels of the federal funds rate for an extended period” Bernanke’s testimony squelched speculation that the Fed may hike rates in the near future.
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US Consumer Confidence at 10 Month Low
The US dollar and the Japanese yen posted gains as jitters about the pace of global recovery sent many investors in search of safe haven assets and currencies. The yen gained after US data showed consumer confidence at a ten month low. The euro was pressured further by a report by the Munich-based Ifo institute that showed that German business confidence fell for the first time in almost a year. John Doyle of Tempus Consulting Inc. in Washington stated, “We’re seeing a slight breakdown to risk as the poor data sparked a flight to safety. The report showed U.S. consumers are not ready to open their wallets if the labor market continues to be so distressed.” High unemployment figures have plagued the US economy since the start of the global recession. Global stocks hit three week highs on Tuesday as traders anticipate Fed Chairman Bernanke’s congressional testimony on Wednesday and Thursday. Investors are waiting for Bernanke to clarify any exit strategies that the Fed may take to withdraw emergency measures put in place at the beginning of the recession. Apprehension ahead of Bernanke’s testimony has prompted a rise in risk aversion benefiting the dollar and yen.
Euro Pressured by French, German, Italian Data
On Tuesday early demand for euros declined after the German business confidence report. French consumer spending numbers and Italian confidence data were both below forecast adding to the Euro’s troubles. Klaus Abberger an economist at the Ifo think tank said the German economy may have contracted during the first quarter. The German economy is the Euro Zone’s largest. Currency analysts say that investors are very wary about Greece’s debt problems and wonder if the austerity measures proposed by Greece are enough to prevent a bailout of the troubled nation. German Chancellor Angela Merkel severely criticized speculation against the euro saying that banks and financial institutions that were bailed out with taxpayer money are taking advantage of the Greek debt crisis. In a speech in Hamburg Merkel lashed out at speculators saying, “The debt that had to be accumulated, when it’s going badly, is now becoming the object of speculation by precisely those institutions that we saved a year-and-a-half ago. That’s very difficult to explain to people in a democracy who should trust us.”
Goldman Sachs Criticized by German Official
Gunther Krichbaum, head of the German parliament’s European Union committee, said in a statement to reporters that investment banks like Goldman Sachs should be given the “red card” if they helped Greece hide its financial crisis. Gerald Corrigan, a Goldman Sachs chairman said the bank did “nothing inappropriate” when it arranged Greek currency swaps designed to reduce Greece’s debt by 2.37 billion euros ($3.2 billion USD).
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Skepticism About Fed Promises
The greenback rose against most major currencies after the Fed’s unexpected rate hike pared risk appetite. The dollar pared gains vs. the euro as data showed that the US cost of living rose less than forecast. Prices, excluding those for food and energy, declined for the first time since 1989. The Japanese yen gained vs. the South African Rand and the Kiwi dollar after the Fed’s actions pushed Asian stocks 2% lower. Boris Schlossberg of GFT Forex in New York stated, “We had a shock to the system yesterday with the Fed’s discount rate hike. The first reaction was to take risk off the table.” Despite the Fed’s repeated promise to keep rates low for ‘an extended period’ skepticism if growing in financial markets about the Fed’s promises. Sumitomo Mitsui Banking Corp. said the Fed’s move was a “misjudgment of historical proportions.”
Fed Says Moves Will Not Lead to Tighter Financial Conditions For Borrowers
Tokyo strategist Daisuke Uno said that the Fed’s rate increase “won’t produce any positive effects.” Many experts believe that if US economic conditions deteriorate that the US which depends on foreign money to fund its deficit could experience “an unsavory rise in interest rates.” The Fed said its moves were intended “intended as a further normalization” of lending and that the “modifications are not expected to lead to tighter financial conditions for households and businesses” and do not indicate any change in monetary policy. Some analysts believe the Fed may have raised rates as a method of “protecting the dollar in case China takes a retaliatory step, such as cutting the amount of U.S. government debt it buys amid heightening tensions between the two nations.” The dollar reached a nine month high vs. the euro as many investors believe the rate hike is a clear indication that the Fed intends to withdraw emergency stimulus measures.
Fed Tightening Policies says Expert
Federal Reserve Bank of St. Louis President James Bullard said that fears of an increase in borrowing were ‘overblown, while Atlanta Fed President Dennis Lockhart said that the rate hike does not indicate a tightening of policy. Andrew Busch of Bank of Montreal in Chicago said, “The CPI report adds some credence to the commentary from Bullard and Lockhart. But when the Fed raises an interest rate, even the discount rate, it’s tightening policy. The U.S. is attempting to exit extreme monetary policy looseness. That should boost the dollar versus the euro.” The euro remains pressured by continuing concerns about the nation’s ability to implement austerity measures to address the ongoing fiscal crisis.
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Better Than Expected Housing and Industrial Data
The US dollar was supported by better than expected economic data and the minutes of a recent Fed meeting that showed Fed policymakers are discussing exit strategies from stimulus programs. Strong US housing and industrial production data pushed the dollar within reach of a seven month high. The euro fell once again against the dollar as Greek fiscal worries persist, putting immense pressure on the euro. Many experts and analysts believe that if Greece implements the harsh budget cutting measures necessary to solve the nation’ debt problems could slow euro zone growth and force the European Central Bank to postpone tightening monetary policies. The Fed minutes showed that several Fed policymakers want to sell securities as soon as the US economy is on a sure footing. Johan Javeus of SEB in Stockholm stated, “It hasn’t been a huge move but the Fed minutes have helped the dollar as they were perceived as hawkish. Whereas before there was a sense that the ECB would be ahead of the Fed in raising rates it now looks increasingly likely that the Fed will move before the ECB.”
Greece Struggles to Implement Unpopular Austerity Measures
The euro has fallen a full 5% since January due to concerns about the fiscal health of several EU nations most notably Greece. Many investors fear that Greece’s problems could spread to other EU nations and cause investors to lose confidence in euro zone assets. German Chancellor Angela Merkel’s government has taken a particularly hard stance against any EU aid to Greece. Greek Prime Minister George Papandreou said that Greece is not seeking a bailout but needed time to implement severe budget cutting measures. Measures include wage and pension reductions, higher taxes and fuel prices and raising the retirement age. The proposed measures have prompted several strikes by public sector employees and are unpopular throughout the country. At the present time there are no concrete policies in place to deal with the Greek debt crisis.
IMF Gold Sale Pressures Aussie and Kiwi Dollars
The Aussie dollar fell after the International Monetary Fund announced the sale of 191.3 tons of gold on the open market to raise funds for lending. Spot gold prices dropped after the IMF announcement putting downward pressure on both the Aussie and Kiwi dollars. The Aussie dropped 0.2% to $0.8960 and the Kiwi fell 0.2% to $0.7006 following the IMF announcement. Jonathan Cavenagh of Westpac stated, “The gold sale news is weighing on the Aussie especially against the U.S. dollar which is seeing a biddish tone.”
Quick Forex Tip: Education is very important for anyone interested in forex online currency trading. Many factors influence currency exchange rates including economic reports, political conditions, and market psychology. Fortunately there are many excellent training programs available for free on the internet to help novice traders gain a thorough understanding of forex markets and the fantastic opportunities they provide investors.
