The run in to the weekend has investors dashing to take position in their currency of choice. To make a decision they have to carefully weigh up the pros and cons of each in the hope that when Monday rolls around, they will have made a wise choice. Earlier, euro bulls warmed to the news that Greek austerity measures had received the approval of European partners, who are eager to avoid a sovereign default at any cost. But the difficulty will surely remain a vote in Athens next week. And while an opposition leader recognizes the importance of the situation, he says he doesn’t like the reliance on tax increases in the plan. He says he’ll vote against. But the more worrisome detail is the loss of support from players within Papandreou’s own party. Such revelation earlier sent the euro from high to low within minutes and highlights the reliance on market-moving sound bites even before the weekend arrives. Monday looks like it’s a long, long way away.
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Euro – Nothing else should matter for the euro at this point and the realtor’s mantra of ‘location, location, location’ would easily by replaced for the value of the euro by ‘Greece, Greece, Greece.’ An earlier unexpected rise in an IFO reading for business confidence in Germany sparked a rally in the single currency driving it to $1.4300. However, the grain of evidence of better times is outweighed by a salt mine of data confirming that the recent lull in global growth has not left the Eurozone untouched. The news that one of Papandreou’s own party members would not support the package threw the euro through a hoop sending it back down to $1.4190. This week’s vote of confidence in the Prime Minster saw the entire party vote in his favor. Next week’s vote on an austerity package is likely to be more contentious. Within a month from now Greek bond maturities and coupon payments totaling €7 billion have to be settled. In August a further €6.6 billion have to be paid. Investors can see the clear need for the fifth loan installment of €12 billion from its partners. Politicians need to see this the same way or else the euro will fall hard and fast.
U.S. Dollar – Friday’s data includes an anticipated rebound for the May reading of durable goods orders; those intended to last longer than three years. The dollar is off to a positive start ahead of the data, admittedly preying on a nervous euro. The dollar rose against a basket of currencies to 75.42 for a gain of 0.3% ahead of the data.
British pound – The pound has suffered in the second half of the week as investors realize exactly how trapped the unit is in its own world of low interest rates. Britain’s severe fiscal austerity measures have coincided with a global slowdown and appear to have added to central bankers’ concerns. In this week’s MPC minutes some members raised the odds of a further wave of bond purchases. The realization that policy is in lock down mode has reduced the relative appeal of the pound leaving it lower on the week against the dollar below $1.6000 for the first time in seven weeks.
Aussie dollar – Reserve Banker Philip Lowe told an audience in Adelaide that the November interest rate increase had a “big effect” on consumers. The quarter-point increase in interest rates to 4.75% may yet prove to mark the final in the central bank’s tightening cycle. Mr. Lowe noted that subsequently households are showing “quite a deal of cautiousness” over spending in light of firmer interest rates, utility prices and the related uncertainty to the European debt crisis. It sounds like the RBA is now in no man’s land as it monitors the response of consumer spending to its policy actions on longer-term trends. The earlier risk-on mode saw the Aussie rally to $1.0600 before paring gains by one half cent. The unit later steadied at $1.0662 U.S. cents.
Japanese yen – The yen surged equally as hard as it had fallen against the dollar in the previous session. Rising risk aversion and concerns for the Eurozone lifted the yen back to ¥80.15.
Canadian dollar – The Canadian unit is weaker although confined to a tight range as the week draws to a close. The loonie eased from $1.0212 to $1.0191 after a stronger-than-expected gain in U.S. durable goods orders.
Andrew Wilkinson is a Senior Market Analyst at Interactive Brokers LLC
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