Relief following euro-supportive election results in Greece lasted just hours with investors quickly realising that Europe’s wider sovereign debt crisis had long moved on from Greece and into Spain. The euro plummeted by over 1.5 per cent against the US dollar, retreating from near one-month highs after Spain’s government borrowing costs reached new record highs on mounting concerns that Madrid will soon be forced into a bailout.
The pound, surprisingly, was more or less unchanged with investors perhaps sidelined on sterling trades before British inflation data that is expected to add to the UK’s monetary policy debate.
Sterling
British consumer price inflation is forecast to have stayed unchanged at three per cent in May, the same increase as the previous month, which could potentially keep the Bank of England nervous about introducing more inflation-inducing monetary stimulus to kickstart growth. The pound remains within striking distance of recent one-month highs against the US dollar but could fall sharply if data comes in below market expectations and consequently fuels more talk about the BoE’s money printing project.
US dollar
The US dollar recovered a sizeable portion of its recent losses with investors quickly moving back into more defensive currencies on worries about Spain’s financial health. The greenback had been under selling pressure in the build-up to the Federal Reserve meeting in which investors fear policymakers may sanction another round of currency-devaluing quantitative easing. US building permits and housing starts are forecast to have increased in May and anything above expectations could give the dollar another lift.
Euro
The euro sank by over 1.5 per cent against the US dollar and is expected to come under more strain over the coming days after market focus turned quickly from Greek politics to Spain’s deepening financial crisis. The single currency had made a dash towards one-month highs in early trade as traders responded positively towards election results in Greece in which the pro-austerity New Democracy party claimed victory over the anti-bailout Syriza party.
Japanese yen
The yen is again on the front foot, climbing against the euro and other risk-related currencies following worrying eurozone developments. In addition, the Reserve Bank of Australia published its most recent policy meeting minutes in which central bankers sounded somewhat dovish on interest rates, allowing the yen to close a session comfortably above five-week lows against the Australian dollar.