The U.S. dollar retreated from recent highs overnight against all of its major rivals as European stocks rallied after Germany and France reached an agreement on the Greek debt crisis. Indeed, French President Nicolas Sarkozy said a “breakthrough” had been made following a meeting with German Chancellor Angela Merkel. The “risk on” sentiment spread globally and has pushed American stock futures up nearly 1.0%, weighing on the greenback. With a light economic docket scheduled for the United States, expect the U.S. dollar to take its cue from equity markets. Nevertheless, the University of Michigan confidence is expected to register at 74.0, down from 74.3 in the month prior. In addition, Leading indicators are expected to climb 0.3% in May, up from –0.3% decline in April.
The Euro strengthened against all of its counterparts overnight after a solution involving holders of Greek bonds in a rescue package for the indebted nation has been found, French President Nicolas Sarkozy told reports today in Berlin at a news conference with German Chancellor Merkel. The euro has been under pressure over the past weeks on concern a Greek-debt default could spread to other indebted nations in the 17-member bloc. The Euro has reversed some its losses after Germany’s Merkel retreated from earlier demands that private bondholders be forced to shoulder a “substantial” share of a Greek rescue, saying she’ll work with the European Central Bank to avoid disrupting markets. Greek bonds rallied and European stocks gained after the joint statement helped alleviate concern of the euro area’s first sovereign default. However, aid for Greece is dependent on the Greek parliament passing additional austerity measures, which until passed, will limit the upside for the common currency. Therefore expect attention to shift to Athens where Prime Minister George Papandreou struggles to gain parliamentary approval for a 78 billion euro five-year package of budget cuts and asset sales by July.
The Japanese yen fell against all of its currency pairs, except the U.S. dollar, as global equities tipped higher in the wake of an agreement on the Greek debt crisis. The USD/JPY exchange rate has struggled to find a definitive direction over the past weeks as the pair continues to ebb and flow with the prevailing risk sentiment. Indeed, the Japanese yen has maintained a 1.0% range over the past two weeks.
The British pound rose against the U.S. dollar, but fell against the Euro, on general increased risk appetite. However, the pound was unable to push considerably higher versus the U.S. dollar as data this week showed “shaky” growth prospects for the U.K. Indeed, data earlier the week showed retail sales slid more than forecast in May while jobless-benefit claims surged. Meanwhile, Bank of England Governor Meryvn King reiterated that officials should continue to hold interest rates at record low because of weak growth in wages and the above-target inflation will prove temporary.
