Tuesday, Apr 06, 2010
By Fabio Alves and Karen Johnson
OF DOW JONES NEWSWIRES
NEW YORK (Dow Jones)-- The euro plunged against its rivals Tuesday morning as mounting concerns over Greece's sovereign debt prompted investors to shun the common currency.
Selling pressure intensified as New York trading session got underway, with the euro losing more than 1 cent, sinking as far as $1.3357, the lowest level since March 26. The common currency fell as much as 1.5% against the yen.
The U.K. pound is one of the worst performers among major currencies amid continued political uncertainty as a date for general elections was set Tuesday. The Canadian dollar fell briefly below parity to the dollar for the first time since July 2008.
The slide in the common currency began overnight, as European investors returned from a four-day holiday weekend there, after reports Greece wanted to avoid the International Monetary Fund being part of the financial aid package put together by the European Union last month.
The report was denied by a senior Greek official, speaking on the condition of anonymity, but that failed to allay investors' fears amid news that Greek banks are facing a wave of cash deposit redemptions by the country's most wealthy citizens and corporations.
"The problem of Greece has definitely not gone away," said Michael Hewson, currency analyst at CMC Markets in London. "Any investors who thought that the political fudge that was agreed [to] at the EU summit with respect to a Greek bail-out will have been sorely disappointed."
Tuesday morning in New York, the euro was at $1.3374 from $1.3484 late Monday, according to EBS via CQG. The dollar was at Y93.79 from Y94.31, while the euro was at Y125.47 from Y127.17. The U.K. pound was at $1.5167 from $1.5281. The dollar was at CHF1.0709 from CHF1.0622.
The ICE U.S. Dollar Index, which tracks the greenback against a trade-weighted basket of currencies, was at 81.537 from 81.110.
Jitters over Greece's short-term funding needs increased on the back of news report that Greece wants to amend its aid deal with the European Union, bypassing the International Monetary Fund to avoid the lender's tough conditions.
A senior Greek official, speaking on the condition of anonymity, denied such report. "Don't expect at this point any major push by Athens to get the IMF out of the picture," the official said.
The denial wasn't enough to allay investor concern. The cost of insuring Greek debt against default surged Tuesday. Greece's 5-year credit default swaps stood at 383.8 basis points, according to CMA DataVision, having last closed above 350 basis points on Feb. 26, before the Easter holiday and at 315.5 basis points a week ago.
Separately, a report on U.K.'s Telegraph cited figures from the Bank of Greece that show more than EUR3 billion worth of cash deposits held by Greek households and companies leaving the country in February and about EUR5 billion leaving in January.
Greece, which has EUR21 billion ($28.31 billion) of debt maturing in April and May, is facing growing pressure to reduce its budget deficit but has had to pay higher cost to lure buyers for its debt. Yields on Greek 10-year government bonds hit 7.1% Tuesday, up from 6.495% late Monday.
"The euro will continue to remain under pressure while Greece struggles to roll-over its debt, along with concerns over other club med economies including Italy," said Hewson. "The bias remains for a lower Euro overall towards $1.30."
Meanwhile, the U.K. pound was under pressure as U.K. Prime Minister Gordon Brown set the country's general election date for May 6.
"The confirmation of a May 6 date for the British election data has also acted as a reminder of the uncertain political outlook for the U.K.," said Nick Bennenbroek, a currency strategist at Wells Fargo in New York.
As recent polls have showed that the opposition Conservative Party's lead has narrowed significantly over the governing Labour Party, investors fret that a divided parliament will make it more difficult for the U.K. to tackle its deficit problems, traders said.
In other currencies, the Australian dollar rallied as the Reserve Bank of Australia rose rates for a fifth time, instilling confidence in the Australian economy and surprising many who had begun to question the likelihood of an increase. The central bank rose its key cash rate 25 basis points to 4.25%.
Canada Morning
The Canadian dollar was trading near parity with the greenback.
The U.S. dollar is trading at C$1.0004 from C$1.0029 late Monday. It dipped to a low of C$0.9992, its lowest level since July 17, 2008, according to EBS via CQG.
The overall bias for the U.S. dollar is to move lower against its Canadian counterpart, but progress has been relatively slow, said George Davis, chief technical analyst for foreign exchange at RBC Capital Markets in Toronto.
Options-related activity has made a more decisive break of parity difficult, he said.
The U.S. dollar could extend its rebound, but any moves to the C$1.0060 to C$1.0130 area will attract renewed selling given the longer-term downtrend in place, Davis said. The C$0.9981 and C$0.9882 levels will offer support for the U.S. dollar, he added.
Weaker equity futures and a stronger U.S. dollar generally are contributing to the greenback's rebound against its Canadian counterpart Tuesday morning, Davis said.
There are no significant data releases in Canada Tuesday morning. The most important report of the week comes Friday, when jobs data for March will be released.
-By Fabio Alves, Dow Jones Newswires; 212-416-2204;
fabio.alves@dowjones.com; Karen Johnson, Dow Jones Newswires; 212-416-2298; karen.johnson@dowjones.com
(Don Curren in Toronto contributed to this article.)
(END) Dow Jones Newswires
April 06, 2010 10:08 ET (14:08 GMT)
