The euro came under downward pressure versus the dollar in early morning trade, with sellers emerging after a number of attempts to break through resistance points failed. Although still relatively strong as it is underpinned by the euro zone’s higher interest rates, the single currency is being overshadowed by sovereign risks concerns. In particular, there has been further talk over the weekend of Greece restructuring its debt with reports from some sources saying that the IMF is in favor of such a move. Meanwhile, Germany was denying that it has drawn up contingency plans for a debt restructuring for Greece.

There is also some uncertainty as Portugal is set to start its round of formal policy discussions with the European Commission, ECB and IMF, as to the terms of its fiscal support package. The bailout is expected to be in the region of €80 billion. There was some alarm over the weekend following the news that an anti-euro party in Finland (the True Finns), which has vowed to veto the pending rescue plan, scored strong gains in an election.

There is little for markets to focus on today and in the absence of any key data euro zone sovereign risk could remain in the limelight. Indeed, the coming week is a very dull one in terms of data releases, with activity levels also likely to be hit by the (Easter) holiday shortened week. The highlight of the week is likely to be Wednesday’s release of the minutes of the April Bank of England policy meeting at which the base rate was left on hold at 0.50%. The policy committee has been split three ways for some time now, with a similar result expected for March. Thursday’s retail sales report for March will also be closely watched as it is key in assessing the performance of the economy in Q1 and thus will be very important for sterling.

With nothing material of note on the economic calendar, sentiment trends are poised to remain in control of currency markets. With that in mind, continued risk aversion appears set to spill over from Asian trade into European hours as stock index futures point lower ahead of the opening bell. On balance, this suggests the safety-linked US Dollar and Japanese Yen are likely to extend overnight gains into the coming session.

Many thanks.

Regards,

Tom Trevorrow
Account Manager
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