Greece, Greece, Greece

Currency in Crisis

The US dollar has surrendered earlier gains that pushed the euro lows not seen in nearly a year, just above $1.3200, before reports spurred speculation that Greece will seek to activate the backstop facility. The euro traded to almost $1.3350 as some shorts moved to the sidelines.

There was talk of sovereign interest as well as short-covering by high frequency traders. Disappointing Q1 GDP data from the UK, where the 0.2% expansion was half of the consensus forecast weighed independently on sterling. This disappointment does UK PM Brown no favors, especially after polls indicate he lost last night’s debate, though marginally. The other mover among the majors, the Australian dollar is heavy following comments from RBA Governor Stevens. By identifying current interest rates as near average, Stevens sparked second thoughts about a rate hike next month. The Australian dollar fell to $0.9180 before finding support. The yen appears largely sidelined today.

Asian equity markets fell, but European bourses are higher amid hopes of some resolution to the Greek drama. A better than expected German IFO and EMU orders data may have also helped European bourses extend gains. The Athens bourse is up around 4%, with the financial leading the way, as speculation of that the multilateral facility will be drawn upon trumps Moody’s lowering of the National Bank of Greece’s credit rating.

Throughout Europe, the industrials, basic materials and technology are the strongest sectors. Earlier, the MSCI Asia-Pacific Index was off 0.5%, to cap a poor week. Japan’s Nikkei slipped 0.3%, and the 1.7% decline on the week makes it’s the weakest since late Jan. The Shanghai Index was off about 0.5%, for a 4.7% drop on the week, its worst weekly performance in five months. Thailand’s main index fell over 1% as the violence around the protests appears to be threatening a military response.

A sense that the Greek crisis is reaching a climax of sorts today has seen the peripheral European bond markets stage a sharp recovery after yesterday’s dramatic slide. This coupled with stronger German and euro-zone data and the rally in equities is forcing unwinding of some safe haven flows. This is weighing on German bunds and Treasuries. Gilts are underperforming, despite the disappointing preliminary Q1 GDP report. There are some fears that a hung parliament (coalition government) will not be able to address fiscal policy in a decisive way.