U.S. Dollar Rises against Major Currencies

The U.S. Dollar is trading better against the major currencies this morning. The Euro and the British Pound are the two weakest currencies.

The U.S. Dollar is trading better against the major currencies this morning. The Euro and the British Pound are the two weakest currencies. The early assessment is traders will be looking to protect themselves against risk which should benefit the lower yielding Dollar.

The EUR USD is under pressure as speculation continues to grow that Greece Prime Minister Papadreou is likely to leave this week’s European Union summit on March 25th and 26th without a financial aid deal. This means he’ll have to turn to the International Monetary Fund for aid if needed. This is negative to the Euro because it makes Europe appear as weak for allowing one of its members to go out of the EU to seek financial help.

European Central Bank President Trichet didn’t help matters much when he offered comments citing his belief that Greece should not be offered low-interest financing. There is no question that Trichet wants stronger terms. He backed his stance by saying, “There shouldn’t be any subsidy element, no concessionary element.” His thoughts were in line with German Chancellor Merkel who is pushing for similar austere measures and sanctions against nations that threaten agreed upon deficit limits.

What is becoming clear is that battle lines are being drawn between Greece and the European Union and its beginning to look like Greece will have to turn to the IMF for financial aid.

The GBP USD is the biggest loser overnight. Sellers are pressuring the British Pound after a report showed that the U.K. inflation rate dropped to 3.0% in February. Coupled with political uncertainty and the threat of a credit rating cut, this weaker inflation report confirms a report released on Monday which calls for a “bumpy” recovery.

The lower Euro is helping to strengthen the USD CHF. Overnight, Swiss National Bank President Phillip Hildebrand said the SNB is poised to act “decisively” to counter any “excessive” gains by the currency. He further added “For Switzerland, we can’t fully rule out deflation threats in the case of renewed external shocks”. “An excessive appreciation for the Franc against the Euro would for example be such a shock.” This comment suggests that the SNB stands ready to continue to intervene on behalf of the Swiss Franc to protect its currency and economy.

Demand for lower risk assets is also helping to pressure commodity-linked currencies. This is weakening the AUD USD and NZD USD while giving the USD CAD a boost.

The primary driver in the Forex markets today will be risk aversion. This could mean lower stocks and commodities. The only major U.S. economic report is the 9:00am CT Existing Home Sales Report. Home sales have plunged since tax relief ended. A surprise in this report could move the U.S. equity markets which will influence the direction of the Dollar.