The U.S. dollar was higher against almost all of its major counterparts yesterday, as concerns over the implications of a Greek exit from the Eurozone sapped investor demand for higher yielding assets.
Speculation over the possibility of a Greek exit from the Eurozone intensified yesterday, as talks aimed at forming a coalition government remained at negotiation stage. The deadlock fueled fears that a fresh round of elections is becoming inevitable and cast doubts over the country’s ability to uphold its fiscal commitments.
Meanwhile, concerns over the health of Spain’s banking system persisted, pushing the yield on Spanish 10-year bonds to 6.27%, the highest level since December, after an auction of government bonds earlier saw the country’s short-term borrowing costs rise.
Adding to the Euro negativity, official data showed that industrial production in the Eurozone unexpectedly declined 0.3% in March, against expectations for a 0.4% increase, fuelling fears over the health of the region’s economy.
Technical and economic data is not having much impact on the currency front. The main concerns in the markets are politics. As we have seen since the start of this year a lot of governments are in disarray and on the brink of collapse. Not just financially but also according to confidence and support. No government in the Eurozone is looking to address the crisis collectively and they are far from agreements domestically. However in UK the coalition has been and will continue to stick to its deficit cutting strategy regardless of the controversial arguments. We believe the reason for GBP to have gained the temporary safe haven status is because markets have seen conviction from our politicians and have the confidence in them to continue collectively.
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