The euro opens up facing a new round of selling pressure after comments from European Central Bank’s Bini Smaghi said that a Greece debt restructure would bring the banking system to its knees, prompting a new round of euro selling. Renewed fears over the European debt crisis have increased recently and will likely cap any euro ability to make fresh gains. In the UK, BRC retail sales report for April showed strong gains overnight. The gains were skewed by the Easter holiday, so whatever sterling strength is seen on the back of the release could be short lived. In the US, import price and wholesale trade data will be released, but activity in the dollar will likely continue to stem from euro weakness, rather than dollar strength.

Sterling

Halifax house price data released showed prices declined by 1.4 per cent on a monthly basis in April. The figures helped to weigh on sterling for most of the day. ARICS house price survey released in the overnight session confirmed that prices were dropping, but at a slower pace.

US dollar

The US dollar touched three week highs against the euro after a rating agency lowered the sovereign debt rating on Greece’s debt by two notches. Focus is now clearly back on the eurozone and its debt problem after the ECB’s president Jean-Claude Trichet dispelled the view that interest rates are headed higher in a series of rate increases. The dollar could find continued support on the back of US economic data that shows a build-up in inflationary pressures.

Euro

The strength of the German trade figures only helped support the euro in a temporary fashion. As the day wore on, fears over the European debt crisis were fanned again when Standard & Poor’s, a rating agency, downgraded Greece’s sovereign debt rating by two notches and placed a negative watch on its outlook. The downgrade spurred heavy euro selling against most major currencies. While the rumour of Greece’s exit from the EU continued to be denied, it is becoming more apparent that Greece is facing a debt restructure. Announcing a restructure could perversely help to strengthen the euro, but that move is still a ways off.

Japanese yen

The Japanese yen saw another lacklustre session of trade overnight. The S&P rating cut to Greece’s debt did nothing to improve risk appetite, which might have seen the yen trade lower. Rather local investors remained sidelined as they wait for more corporate earning reports from major companies.

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