Forex Market Review – Euro weakens on Spain debt woes

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Euro edged higher against the softer dollar early into the European session but soon pared gains. Satisfactory German retail sales data early in the session helped briefly buoy the euro but Spanish data weighed the single currency.  EURUSD rose to 1.3265 before dropping to 1.3207 as the pair was unable to sustain the rally as investors are wary of euro zone debt issues, especially after weak Spanish GDP numbers today. Data showed that growth in the Spanish economy contracted 0.3 percent in the first quarter. Gains in the euro are likely to be capped this week as there are several risk events.  The European Central Bank policy meeting on Thursday will be in focus. Also we have the second round of the French presidential vote as well as elections for a new Greek parliament next weekend.


The ICE dollar index briefly fell to a two-month low as the greenback is pressured by weaker than expected US GDP data from Friday, which raises the likelihood of further monetary easing by the Federal Reserve. Dollar direction will be driven by upcoming US economic data, on ISM gauges of the manufacturing and services sectors, as well as jobs numbers from the all-important Non-farm payroll report.


GBPUSD extended its advance to a new eight-month high of 1.6300 early in the European session. An absence of UK economic data today left the focus on a weak dollar.  The pound was considered a safer investment versus the vulnerable euro and softening US dollar.  Meanwhile, the interest rate differentials and differing policy views between the Fed and Bank of England  are helping lift sterling against dollar. But gains in the pound are likely to be limited given the British economy is in recession.


EURGBP declined further to a new near-two-year low of 0.8121, pressured by the stronger pound. This is the lowest level  since June 27, 2010.


Yen gained against the dollar and euro on safe haven demand. EURJPY  fell to a two-week low of 105.87 as the ailing euro remains pressured by euro zone debt problems, and yen is expected to benefit from safe-haven demand.  USDJPY consolidated at the two-month low of 80.07 reached earlier in Asian trading. The dollar is likely to come under more pressure if the upcoming US jobs numbers are disappointing.