Euro Slides on Greece Polls

Greece has called for fresh elections after the nation’s political parties failed to form a coalition government. The prolonged deadlock has sparked uncertainty over Greece’s pledged austerity measures and increased chatter about the nation’s future in the Eurozone. Meanwhile, better-than-expected growth in Germany avoided the Eurozone slipping into a recession. In the UK, markets keenly await the BoE Quarterly Inflation Report and the subsequent press conference later today. BOE is expected to lower its growth forecast for the UK economy and to throw light on its decision to leave the asset purchase facility unchanged. Across the Atlantic, attention will be focused on the FOMC minutes due later in the day.

Pound Sterling – UK Markets

Following last week’s decision to keep policy unchanged, today’s report and the accompanying press conference with Governor Mervyn King is likely to provide insight into the MPC’s recent monetary policy decision. Buoyant German GDP data weakened the Pound’s appeal against the Euro in yesterday’s session. The currency also slid against the US Dollar amid disappointing UK trade deficit data and encouraging economic releases across the Atlantic. Although the visible trade deficit narrowed to £8.56 billion for March, perceived weakness in European demand for British goods dimmed the outlook of any material improvement in the near term. Data just released showed that U.K. jobless claims fell for April, while the unemployment rate dropped for March.

US Dollar – US Markets

The US Dollar continued to trade broadly higher against the majors this morning as risk aversion remained elevated on the Greek political stalemate. Additionally, yesterday’s data that revealed a rise in the New York Empire Manufacturing and NAHB Housing Market Index for May, coupled with stable headline consumer price inflation boosted investor confidence over the pace of US economic recovery. However, retail sales slowed sharply for April hinting at sluggish momentum in consumer spending. Adding to the optimism, US Treasury Secretary, Timothy Geithner affirmed that the nation was gradually recovering out of its economic woes and is in a stronger position to face the challenges. Later today we have the release of key housing and manufacturing data for April. Moreover, minutes of the latest Fed meeting take centre stage later in the session for further cues on QE3 prospects from the central bank.

Euro – European Markets

The Euro has slipped against the US Dollar, as Greece's political leaders are scheduled to meet today to form a caretaker government. The Euro slipped below the 1.27 mark against the US Dollar and headed closer to January lows, amid fears that a second election in June could lead to Greece's exit from the Eurozone and deepen the bloc's debt crisis. Additionally, the escalation in risk aversion amongst traders has led to a sharp rise in Spain’s and Italy’s borrowing costs, with the Italian 10 year yield crossing the 6% mark, for the first time since January 2012. The Euro registered marginal gains against the US Dollar in yesterday’s morning session, after data revealed that the Eurozone economy unexpectedly avoided slipping into a recession, on the back of upbeat growth figures from Germany. However, the currency failed to hold onto the gains against the US Dollar amid an array of weak GDP figures from across Europe. Meanwhile, in a move to allay jitters, New French President, Francois Hollande and German Chancellor, Angela Merkel promised a joint approach to growth strategy and called for Greece to continue in the bloc.

Other Currencies – Highlights

The Japanese Yen traded flat against the Euro and Sterling, as growing concerns over the Eurozone debt crisis offset weak economic data from Japan. Data indicated that the Japanese tertiary index declined at a faster than expected pace for March, while the consumer sentiment index unexpectedly registered a downtick for April. Additionally, machine orders continued to fall in March. However, sharp losses in Asian and European equity markets and rising Spanish and Italian bond yields offered support to the Japanese Yen. Yesterday, the Japanese Yen climbed against the Euro on account of the events unfolding in Greece.