By: Nikoletta Panteli
EUR/USD
The Euro weakened at the start of the new week against the US Dollar in reaction to concerns about whether Greece will sign an agreement with its private creditors. The pair opened at 1.3179 and broke below the 1.31 level to trade as low as 1.3076. After the EU summit, the single currency rebounded to 1.3213 as the EU leaders agreed on fiscal compact, designed to prevent overspending in the eurozone and stop the debt crisis from spreading. The pair closed at 1.3137 marking a depreciation of 0.3%. The agreement boosted risk appetite in the markets as this was considered an important move towards a “fiscal union”. Optimism was further boosted after the Greek Prime Minister Papademos said that the negotiations with the bondholders made significant progress raising hopes for an agreement by the end of this week. Italy’s bond auction was successful yesterday after the Italian treasury managed to sell 7.5 billion euro worth of bonds at lower yields, but Portugal’s 10-year government bond yields reached 17% raising fears that Lisbon may be the next to seek a second bailout. Focus now turns to the Consumer Price Index which is expected to remain at 2.7% while the European Central Bank’s target rate is only 2%. On Friday, investors’ eyes will be looking at the Non Farm Payrolls. In the scenario where the figures are higher than expected, risk, appetite may rise on expectations that the world’s largest economy is improving which in turn may support the single currency.
GBP/USD
The British Pound appreciated versus the US Dollar on the first day of the week, benefiting from hopes for a Greek debt-swap deal and a weaker dollar. The Federal Reserve announced during the last monetary policy meeting that interest rates will remain at ultra low levels for an extended period of time while expectations for a third round of quantitative easing are also high. The weaker dollar in combination with a heightened risk appetite in the market pushed the sterling as high as 1.5714 on Monday, after hitting a low at 1.5654. The pair opened at 1.5712 and closed at 1.5706, a slight gain of 0.04%.
EUR/JPY
The single currency rose for the first time in four days versus the Japanese Yen on Tuesday gaining back some of Monday’s losses. This was after the European leaders met in Brussels to discuss a solution to the eurozone debt crisis and after they signed a deficit control treaty. On Monday, the pair opened at 101.06 and rose to 101.08 but later in the day it slid as low as 99.99 to close at 100.34. This marked a decline of 0.17%. There is speculation that the Bank of Japan may intervene in the currency market to curb its currency’s rise as it may hurt Japanese exports. Japanese Finance Minister Azumi said that the central bank is prepared take decisive actions as the Yen is approaching its strongest levels since the last intervention by the BoJ.
EUR/GBP
The single currency declined against the British Pound on Monday. Hopes for a restructuring deal for the Greek debt failed to support the single currency which dipped to 0.8345 on Tuesday. The market will be dominated by developments over the debt deal between Greece and its private creditors. On Monday, the pair opened at 0.8388, rose to 0.8397 but later slid to 0.8350 before closing at 0.8365. This was a depreciation of 0.3%. Housing Prices and Manufacturing Purchasing Manager Index are due this week which may provide signs whether the UK economy is improving.
USD/CHF
The Greenback was weak against the Swiss Franc as the week commenced. There are no economic data releases for Switzerland due this week. The pair declined following the rate decision of the Federal Reserve of the US last week. On Monday, the pair opened at 0.9149 and closed at 0.9158, a slight rise of 0.1%. The pair rose as high as 0.9209 yesterday but on Tuesday it slid to trade as low as 0.9122. The Greenback weakened after the Fed announced that the loose monetary policy will remain for a longer period of time and as uncertainty over Athens’s agreement to restructure private sector debt supported the safe haven Franc. Speculators argue that the Swiss National Bank may step in the currency market to stop the franc from rising further. The SNB has set a floor at 1.20 for the Euro versus the Swiss Franc, and the pair is approaching that figure while the central bank seeks a new chief following Hilderbrand’s surprise resignation. What may be very significant is the Consumer Price Index, expected next Monday, and in a scenario where deflation pressures continue then expectations for an intervention may heighten.