By Andrew Wilkinson at IB:
If ever an award was handed out for best drama of 2010 one can imagine that, amid rapturous applause, Greece would be the popular vote. And the acceptance speech from its Finance Minister would be a final act worth hearing. One can hear George Papaconstantinou already with a litany of praise for a long list of key players who made the drama worth the harrowing journey. From the 50-year old premature retirees to the civil servants bronzing themselves on the beach. From the angry mobs on the streets of Athens to the manic speculators punishing the government by raising the cost of capital. And the Finance Minister might finally turn to the currency speculators with whom he can shed a tear and thank them for the outcome by saying that, without them, none of this would have been possible.
Euro – The euro gapped higher in Asian trading and reached $1.3692 after closing at $1.3499 at the end of a rumor-driven session on Friday. Over the weekend EU ministers named the terms and the size of loans that Greece could draw upon. At the same time the IMF announced half as much again. Greece can now go ahead with plans to test bond investors’ confidence tomorrow with auctions of six-month and one-year treasury bills totaling €1.2 billion safe in the knowledge that should the auction fail it can submit a ticket for the shortfall. It will also go ahead with larger auctions during April denominated in U.S. dollars in the hope that it can tap the markets for cash with a rather ugly big brother behind it.
The relief was necessary after last week’s capitulation in Greek bond yields, which themselves act in a perverse manner making the likelihood of successful bond issuance a lesser prospect. The currency market was clearly caught short and after an initial rally the euro came off the boil and has eased to $1.3578. It also made gains against the Japanese yen by rallying to ¥127.00.
U.S. Dollar – The greenback is putting a brave face on despite losing out sharply to the euro. The dollar faces a mixed performance to start the week and is weakening against the yen and Swiss franc although it is rising against the Australian, Canadian and British units.
Japanese yen – The yen lost a battle against the dollar from a step up in risk aversion today after a report indicated a 1.8% year-over-year decline in the pace of Japanese bank lending data. The dollar rose to ¥93.39 on Monday.
Aussie dollar – The positive outcome for the Eurozone had the potential to expand even further the risk appetite for emerging markets. An upgrade from the bank of Korea on how fast it expects its economy will grow this year helped strengthen emerging market currencies against the dollar. The Bank said raised from a December-time forecast of 4.6% to a 5.2% pace for 2010.
However, for the Aussie dollar a poor reading for home loan approvals for the month of February ensured that the currency had a bad day. Having opened optimistically and reaching 93.88 U.S. cents in early trading the Aussie fell heavily in response to signs that five rate increases at the last six monetary policy meetings might be biting. The Aussie rebounded later in the session from a 92.52 low and is trading at 92.72 cents.
Canadian dollar – The failure to stay beyond parity at its first attempt last week has investors fading the Canadian unit on strength, especially after last week’s worrisome labor market report. As such the U.S. dollar took precedent over the Canadian unit today from the get-go and has crept higher with the Canadian buying 99.20 cents today.
British pound – The pound surged in response to the EU announcement for aid to Greece and hit $1.5485 before losing about a cent to $1.5392. That still leaves a gap open but only down to $1.5370. Against the euro the pound lost half a penny to stand at 88.28 pence.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.