Dollar Rises on Greek Concerns; Weaker Commodity Prices
The U.S. Dollar is trading higher overnight as Greek
financial concerns drive the Euro lower, poor economic news weakens the British
Pound and demand for commodity-linked currencies fall as China may raise
rates during the second quarter.
The Dollar finished higher against most major currencies on
Tuesday, boosted by renewed trouble in Greece and comments from the
minutes of the Fedâ€™s last meeting.
problems are resurfacing due to speculation that it will not be able to service
its debt. The troubled country is reportedly asking for more favorable interest
rates on loans from the European Union and to amend certain parts of the
bailout proposal from the International Fund.
The spread between Greek Bonds and German Bunds has been
widening, indicating that investors are asking for more protection in case of a
default by Greece.
The Dollar received a late session boost on Tuesday following
the release of the minutes from the last Fed Open Market Committee meeting.
Investors were reacting to the debate by the Fed members over the use of the
term â€śextended periodâ€ť which has been used in several of the recent Fed policy
The term â€śextended periodâ€ť has been difficult for analysts to
translate into a specific time period because of its ambiguity. The central
banks of Canada and New Zealand
have been more specific with their forecasts as to when rates will most likely
rise in these two countries while the U.S. Fed remains unclear. Analysts have
been looking for the Fed to clarify this statement to remove some of the
speculation from the markets. Based on comments in the minutes, many analysts
now believe the Fed will remove â€śextended periodâ€ť from its next statement on
In addition to discussions about the use of terms, the Fed
also reduced its forecast for economic growth and inflation.
The main trend on the daily chart turned down in the Euro on
Tuesday when the market crossed the last swing bottom at 1.3384 and to the bearside
of a minor retracement zone at 1.3402 to 1.3370.
Overnight a European Union report showed that fourth quarter
gross domestic product in the Euro area fell to 0.0% versus an earlier estimate
of 0.1%. This could be the effect of the
financial turmoil caused by Greece.
Although these results were expected, traders continued to pressure the Euro as
conditions regarding Greece
have not changed enough to warrant a better outlook for the first quarter GDP.
Losses may have been limited by an increase in Euro Zone Final Services PMI and
a higher PMI Composite figure.
The drop in 4Q GDP is leading analysts to believe the
European Central Bank will leave interest rates unchanged at tomorrowâ€™s
The GBP USD is under pressure this morning as U.K. services
industries expanded less than forecast. These poor results are likely to keep
downward pressure on interest rates when the Bank of England meets tomorrow. In
addition, traders should watch for the possibility of an expansion of its
quantitative easing program. U.K. PMI fell 56.5 from 58.4. A reading of 58 was
expected. The Index of Services Data grew only 0.6% versus a forecast of 0.8%.
The unexpected drop in both of these reports reduced the bullish impact of the
recent better than expected 4Q GDP report.
Besides the sluggish economy, the British Pound faces a
surging deficit, worries over debt quality and political uncertainty. Since the
election date has been set at May 6th, expectations are for this currency to
remain under pressure until at least that time. It is highly doubtful that
traders will buck the downtrend and buy the Pound into the election especially
since recent polls still suggest the strong possibility of a hung parliament.
Lower demand for higher risk assets is helping to pressure
the USD JPY. Technically, this market has been under pressure since Mondayâ€™s
closing price reversal top. The chart pattern suggests a minimum 2 to 3 day
break with a possibility of a near-term decline to a 50% level at 92.26.
On Tuesday the Bank of Japan voted to keep interest rates at
0.1%. It also decided to retain its monthly government bond purchases at 1.8
trillion Yen as expected. The weak economy is forcing the BoJ to maintain an
â€śextremely accommodativeâ€ť financial environment. At this time it feels that
beating deflation is still its â€ścritical challengeâ€ť. Based on recent government
reports, the economy is expanding but far from a sustainable recovery stage.
The current recovery remains insufficient while downside risks remain high.
Finally, talk is circulating that China may raise interest rates
during the second quarter. This may hurt demand for commodities and raw
materials. The commodity-linked Australian Dollar, New Zealand Dollar and
Canadian Dollar are down overnight as traders lighten up long positions.
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