Forex Market Review – Greece and euro zone recession fears weigh on the euro

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The euro fell to a three week low against the dollar and touched a two-week low against the yen as concerns grow over the Greek debt swap deal. Weak GDP data on the euro zone accelerated the single currency’s decline. Fourth quarter GDP contracted by 0.3 percent in 2011. This was in line with expectations, but a consistently weak growth rate highlights the danger of the euro zone falling in to a recession.

EURJPY plunged to a low of 106.18 while the EURUSD dropped to 1.3130 from an earlier high of 1.3207.

The market focus is on the March 8 deadline for the voluntary participation of private creditors in the Greek PSI debt swap deal. A participation rate of 90 percent is required according to the debt agreement, which will then set the ball rolling for the release of the second bailout package to Greece.

Yen strengthened due to damp risk appetite today, which pressured the USDJPY lower to 80.77, well off a nine-month high reached yesterday.

Dollar hit a three-week high against the Swiss franc, and also gained against the British pound, as investors turned to the greenback for safety. USDCHF rose to 0.9181 from the session open of 0.9131, while GBPUSD fell to 1.5756 from an early session high of 1.5858.

Apart from Greece dominating market sentiment, China is also unsettling markets after announcing yesterday that it lowered its 2012 growth target to 7.5 percent, the lowest level in eight years. China is the world’s second largest economy. Slower growth there will affect commodity-linked currencies like the Australian dollar, which has weakened since yesterday.

AUDUSD extended losses in European trading hours to fall to a six-week low of 1.0572. The Reserve Bank of Australia’s decision to hold rates unchanged at 4.25 percent today, and to keep the door open for further rate cut, also weighed on the aussie.