No Respite in Sight

The after-shocks of the recent elections in the Eurozone continue to put pressure on high yield currencies. The impasse among Greek leaders to form a coalition government has spurred market speculation that the nation may exit the Euro-area bloc. With little on offer in terms of economic releases in Europe and the US, markets may respond to the news flow emanating from Greece in today’s trading session. At home, like-for-like retail sales for April, as measured by the British Retail Consortium (BRC), surprised market participants on the downside earlier today and has turned focus onto the BoE’s monetary policy meeting scheduled tomorrow.

Pound Sterling – UK Markets

Yesterday, the Pound weakened against the US Dollar amid an array of bleak macro indicators. The Royal Institute of Chartered Surveyors indicated that the house price index in the UK worsened to a six-month low for April, while the Lloyds employment confidence weakened for the same period. However, political uncertainty in Greece aided the Pound to consolidate gains against the Euro. The same trend has continued this morning, with Sterling taking a hit against the greenback after the BRC revealed the biggest decline in UK retail sales in more than a year. In a noteworthy statement the British Prime Minister, David Cameron, insisted that the nation must adhere to its tough austerity measures in order to sail through the recessionary winds. With today’s economic calendar on the light side, developments in Greece are set to determine the Pound’s direction against the majors. Meanwhile, markets await the BoE’s monetary policy meeting due tomorrow amid increased risks of additional stimulus, after former BoE official, John Gieve, opined that the central bank might increase its asset purchase target in its rate setting meeting.

US Dollar – US Markets

The political deadlock in Greece continues to spur the appeal of the US Dollar as a safe haven asset in today’s trading session. Markets are grappling with the fear that Greece may leave the single currency union, ahead of the first review of the nation’s second bailout package next month. Economic releases yesterday offered some respite to traders following last week’s dismal non-farm payrolls. Data indicated that the NFIB small business optimism index for April climbed to its highest level in more than a year, while the IBD/TIPP Economic Optimism revealed a better-than-expected reading for May. Meanwhile Dallas Fed President, Richard Fisher, objected to the extension of the central bank’s Operation Twist program. However, he added that he does not advocate an immediate hike in the interest rate. The wholesale inventories data slated for release later today is not likely to garner much market attention. In today’s trading session, we may see the US Dollar to trade on a firmer footing against the majors amid a worsening political situation in Greece.

Euro – European Markets

The Euro is trading just below the 1.30 mark against the US Dollar amid increased risks of Greece exiting the bloc as the nation struggles to form a coalition government. The ongoing conundrum has cast serious doubts over the viability of austerity measures in the region. Adding to the woes ECB board member, Joerg Asmussen, indicated that the central bank will not renegotiate Greece's bailout package and that the nation must adhere to its fiscal commitments if it wants to continue in the Eurozone. On the macro front, data revealing a rise in German industrial production for March yesterday, coupled with today’s upbeat trade balance and current account data, failed to allay market worries. With no crucial economic releases scheduled during the day, the Euro is expected to track the outcome of the meeting between the Radical Left party and Greece's mainstream parties slated later today.

Other Currencies – Highlights

The Aussie Dollar has retreated against its major counterparts this morning after Julia Gillard, the Australian Prime Minister, indicated that her plan to return the nation’s budget to surplus will provide room for the central bank to cut its benchmark interest rate. Earlier this week, data had revealed a higher than expected Australian trade deficit for March, while foreign exchange reserves declined. Moreover, demand for the Aussie Dollar dampened as risk appetite among traders took a hit, amid intensifying political uncertainty in Greece. With no major releases today, the Australian unemployment and Chinese import data due tomorrow, are likely to be closely tracked to gauge the outlook for the Australian economy.