The European sovereign crisis has come to resemble one of those intricate multi-faceted and fast-paced board games involving dozens of tiny odd-shaped pieces and playing cards. Of course the stakes are far higher in the Eurozone yet the reality is that each player's move has to be carefully plotted and even after someone has indicated the end of his turn, the implications only become evident when another player perhaps unwittingly reveals a critical combination of cards and territory that sets back the ambitions of another player — friend or foe.
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Euro – The single currency quickly gave up its early-riser advantage when Moody’s reminded investors that whatever illicit events go down in Athens don’t necessarily stay in Athens. The agency took an axe to the Portuguese sovereign rating slashing it by four notches and consigning it to junk status. Before Portugal can return to the capital market in order to raise further capital, Moody’s predicts it will require a further round of financial assistance from its Eurozone partners. The euro, which earlier traded at $1.4466, fell to $1.4317 as EU officials danced around the thorny issue of encouraging private creditors to Greece to rollover debt several decades into the future without triggering a ratings event that would signal a catastrophic default. All of the game players are holding a variety of pieces, the combination of which at any given moment, if put into play, could escalate the crisis further. None of the players wants to precipitate the crisis further but is bound by their role in the game to shout out when some kind of infringement occurs.
U.S. Dollar – The dollar gained as the euro struggled to stay afloat with its index adding more than 0.5% in early morning New York trade at 75.07. The greenback is higher against all of the major trading pairs with the exception of the yen, which is also performing better than most as the risk waters turn frigid. The dollar may get a further boost mid-morning when the ISM non-manufacturing index is released. Dealers expect the diffusion index to head further towards the 50-mark indicative of neither expansion nor contraction. A late spring time lull in the economy is further evidenced by a rate of unemployment running at 9.1% and likely to be confirmed by weak payroll growth for June in a report on Friday.
Canadian dollar – Tipping high-yield and growth-sensitive stocks over the edge midweek was a third rise in Chinese interest rates for the year. The Peoples Bank waited until after-hours Wednesday to announce a 0.25% increase in deposit and lending rates effective tomorrow. The Canadian dollar didn’t take kindly to the risk-off climate and slid against the dollar to $1.0327 U.S. cents for a third day of declines.