Dollar eases as risk rally builds ahead of Greek vote

Dealers opening office windows in Sydney or tuning into a radio station in New York are hearing the same story the world over as lawmakers in Greece prepare for Wednesday’s critical vote over an austerity package. Without the support of the government Greece will find itself in complete isolation and a matter of days away from insolvency, unable to pay already outraged public workers. If the Prime Minister does find enough votes to pass the bill into law the economy will move along in sluggish fashion while attention will surely fall on other peripheral bailout nations, slightly less desperate but technically close to the brink.

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Euro – The single currency is confined to a narrow one-cent trading range as dealers sweat out the final hours before a midweek vote. A start-of-the-week recovery came on the heels of little enough news to further torpedo Papandreou’s chances of success, while the euro has picked up enough to leave a bet against it well balanced. Later on Tuesday consumer prices from German states compiled during June will be molded into a single figure with analysts expecting a monthly rise of 0.1% to leave prices up by 2.3% on a year ago and matching the rise during May. Signs of a dwindling inflationary threat emerged within that nation’s import price reading for May as a 0.6% monthly decline left prices up by 8.1% over one year ago. In April the annual pace of increase was 9.4%. Although the fundamental data is definitely playing second fiddle to the unraveling drama in Greece, there will come a point in time as and when the situation calms down, that investors staring through at less worrisome price data, will take a less hawkish view of the ECB and favor the single unit less.

U.S. Dollar – Ahead of another likely pessimistic view of the U.S. housing market in the shape of the S&P Case-Shiller national house price index the dollar remains marginally higher and on an index basis stands at 75.40. Later on Tuesday economists predict that the slightly softer tone to gasoline prices will help spur consumer confidence. According to the consensus estimate the Conference Board predicts a mild uptick in the June confidence reading to 61.0 after 60.8 last month. The Richmond Fed published its reading of regional manufacturing activity, which is slated to remain in contraction albeit at a slightly less restricted pace.

British pound – Since October MPC-outsider Adam Posen has argued that the economy requires further stimulus in the shape of additional bond purchases. The Bank earlier in the year completed its £200 billion worth of quantitative easing and its members collectively voted to hang fire until the picture is clearer. In a speech last night Mr. Posen bashed a weekend report from the Bank for International Settlements calling for central bankers to engage in inflation-fighting monetary tightening, which he called “nonsense.” Mr. Posen noted that Britain’s economy was “at little risk of inflation” describing the scene as showing “little or no credit growth, little wage growth beyond productivity, little evidence of rising inflation expectations.” His views helped dull appetite for the pound as investors grew concerned that it’s not he alone who shares that view of the real economy. The pound has subsequently rebounded against the dollar from a session low at $1.5911 and per euro to 89.34 pence.

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