By: Nikoletta Panteli
EUR/USD
The Euro weakened at the start of the new week against the US Dollar on a heightened risk aversion in the market. The pair fell below the 1.29 level for the first time since January when it opened at 1.2896 and then fell as low as 1.2813, a 0.6% decline. The pair weakened further on concerns over global growth following China’s announcement for additional monetary easing after the country’s poor growth figures.
The political uncertainty continues in Greece as new leaders failed to form a new government making a unity coalition appear almost impossible and new elections inevitable. The question on investors’ minds is whether Greece will be able to avoid an exit from the eurozone and escape from a catastrophic default.
The uncertainty weighed on world equities and Spanish and Italian 10-year borrowing costs reached their highest levels this year. Further weighing on risk sentiment is Moody’s decision to downgrade 26 Italian lenders with the credit agency citing mounting loan defaults and potential funding problems. Economic data from Germany today showed Gross Domestic Product figures from Germany, the largest economy of Europe, gained 0.5% in the first quarter of 2012 driven by a surge in net exports. Attention is now on inflation figures from Europe expected on May 16.
The British Pound plummeted versus the US Dollar this week, trading at a three and a half week low. The pair opened at 1.6071, rose to 1.6123 and Tuesday the pair fell as low as 1.6018, a 0.7% decline. The political deadlock in Greece weighed on the Sterling and boosted investors’ appetite for the safe haven Dollar. Focus is now on the Bank of England’s quarterly inflation report on Wednesday, in which the BoE will give its growth and inflation forecasts. What is interesting to see is whether the central bank will take a more dovish stance on the economy and whether it will signal an expansion of their asset purchasing program. Unemployment data from the UK is also expected on Wednesday.
EUR/JPY
The single currency plummeted versus the Japanese Yen this week, weighed by political uncertainty in the eurozone. Investors’ are concerned about Greece’s ability to stay in the EU and avoid default while the Yen is attracting safe haven demand as uncertainty in the markets is heightened. The pair opened at 103.20 this week and slid as low as 102.22, a 0.9% decline. Focus now turns to the release of Japan’s Gross Domestic Product on May 16 where a 0.9% expansion is expected.
EUR/GBP
The single currency edged lower against the British Pound Tuesday, falling to a three and a half year low at 0.7962 on Monday after the pair opened at 0.8024. Sterling appears strong, supported by its safe haven status. The UK’s triple-A rated government bonds are attracting increasing demand while the eurozone is suffering from stagnation in economic growth. On Tuesday, data from Germany relieved some pressure on the euro after Germany’s economy grew 0.5% in the first quarter of 2012 but the single currency remains under pressure as political uncertainty in Greece continues.
USD/CHF
The Greenback rose against the Swiss Franc this week. The pair opened at 0.9311 and it climbed as high as 0.9372 from 0.9308. Deflation continues to be a threat for the Swiss National Bank (SNB) putting pressure on it to intervene in the currency markets in order to weaken the Franc. The SNB has set a floor at 1.20 in September for the Euro versus the Swiss Franc in order to protect its exports. On Monday, SNB chairman Thomas Jordan said that the bank is committed to the cap and the SNB is willing to take further measures to defend the Franc, if needed.