Things couldn’t be better in the Eurozone, where 93.5% of the region is on a sufficiently robust upswing that the central bank has seen fit to call a start to a new monetary tightening cycle. Even the Dalai Lama has brought smiles to Irish folk despite the bitter aftertaste of a bailout from its neighbors. The banned Tibetan spiritual leader was welcomed by sellout crowds across the Emerald Isle as he encourages them no “forgive but not forget” the policies of its European cohorts. Meanwhile a fresh wave of nervousness drove vulnerable European nations’ bonds in to the ground forcing yields to a record high. Talk of a restructuring of peripheral nations’ debt reminded currency investors that those economies might comprise a mere 6.5% of total GDP within the Eurozone, but they account for 100% of the euro’s recent woes.
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Euro – You just never know when the thorny sovereign debt issue is likely to resurface again, and like a baseball steroid saga, the problem seems destined to never go away. In recent weeks it became apparent that EU ministers were reaching similar conclusions about what steps were necessary and what agreements should be put in place in dealing with deficit laden reprobates. But as many have promised the issue of bond holder losses is again plaguing the markets. Greek Prime Minister Papandreou recently said that no restructuring was necessary for his nation’s debt, but that’s not the view of influential German Finance Minister Wolfgang Schaeuble who today told Die Welt newspaper that a forthcoming audit in June might leave Greece unable to make debt repayments. If that transpires, Mr. Papandreou will need to negotiate with its creditors. The euro slumped across the desk in lunchtime trading in Frankfurt as dealers took pot shots and almost slashing two full cents off the value of the single currency. Earlier the unit bought $1.4515 before the story broke creating a surge in peripheral bond yields and a slide in the euro, which hit $1.4365.
Japanese yen – The yen found its way back to ¥83.00 against the dollar overnight as lingering concerns over global growth caused by warnings over rampant commodity prices kept up demand for the yen. Its safe haven status is currently questionable in the aftermath of the natural and resultant nuclear disasters that drove the Bank of Japan to request coordinated efforts to stem a crippling rise in the yen. The yen made sharper gains against the single currency, which slid to ¥119.43. Against the pound the Japanese unit rallied to ¥135.50.
Canadian dollar – The recent slide in the price of crude oil alongside other prices for key commodities was tempered by a midweek retail sales report out of the U.S. showing only modest impact on consumption. The commodity currencies were perhaps too quick to dispel economists’ warnings and staged a speedy rebound. However, it looks like yet another warning from leaders of so-called BRIC nations is making dealers think twice about the longevity of the super-cycle for commodities. The loonie is off sharply against the greenback on Thursday and fell to as low as $1.0331 U.S. cents from a midweek close at $1.0376. Later on Thursday Canada produces a manufacturing sales report covering February with dealers expecting a decline of 0.5% after a strong 4.5% rebound to start the year. The Bank of Canada warned earlier in the week over the impact of a raging currency on export growth. The report may be a little dated but will likely refresh investors’ minds over the fact that the unit has been north of parity ever since the start of February.
Aussie dollar – A meeting of leaders from the BRIC countries and including officials from South Africa culminated in another warning over the damage created by rising commodity prices. The “excessive volatility in commodity prices, particularly those for food and energy, poses new risks for the ongoing recovery of the world economy.” The communiqué put news of a 23.5% annualized first quarter jump in Singapore’s GDP in a different light. The leaders warned that the focus on raw materials left their economies vulnerable to a downturn in global growth, while China and India are home to around 2.6 billion people who are equally vulnerable to the recent rising food cost. The Aussie dollar reversed earlier gains following the increase in risk aversion stemming from Europe and suffered the backlash of a weaker sentiment for growth-sensitive currencies. In recent New York trading the Aussie slipped to $1.0500 U.S. cents.
British pound – Investors are sheltering from the tempest affecting the euro by clinging on to the British pound today. The euro fell to purchase 88.19 pence while the pound held on to gains against the dollar to stand recently at $1.6333. An upbeat consumer confidence report helped improve the tone and added weight to the argument that perhaps the Bank of England should raise interest rates. The Nationwide report showed that in April consumers felt marginally better about their prospects, with more agreeing that now was a good time to buy. Confidence in March reached its lowest in the seven-year history of the series.
U.S. Dollar – The dollar pulled off a 16-month low on an index basis as the euro ran into sovereign debt woes. The dollar index earlier slid to 74.62 as the euro attempted to breach its highest level in 15 months before the views of the German Finance Minister hit the wires. The index quickly regained its footing above 75.00 for a session gain. Equity index futures are deeply in the red one hour before the official open and commodity prices remain soggy. Later this morning the U.S. produces its data for initial jobless claims and wholesale producer prices.
Andrew Wilkinson is a Senior Market Analyst at Interactive Brokers LLC
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