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European Session – Greece concerns and bund yields drive currency markets

Greece concerns and bund yields were the main drivers of the currency markets during Tuesday’s European session since there were no tier one data releases.

Economic data out of the Eurozone showed revised Q1 GDP at 0.4% quarter-on-quarter. With regards to Greece, Tsipras’ government submitted fresh proposals to its creditors today, which were rejected for being insufficient. The latest submission on reforms comes after last week’s 47-page proposal by Athens was also rejected and then a counter-offer by the creditors to Athens was rejected as the Greek Prime Minister characterized them as “absurd”.

Meanwhile, focus will be on Wednesday’s meeting between Greek PM Tsipras, German Chancellor Angela Merkel and French President Francois Hollande in Brussels, to discuss the progress made in the debt negotiations so far. Time is running out for Greece and a deal needs to be struck by the end of June, when the country’s bailout program ends.

Concerns over Greece weighed on the euro today as it slipped from a high of 1.1344. Its decline was halted at 1.1213 after bund yields rose to 0.95%, having traded as low as 0.87% earlier in the session.

Sterling fell against the dollar from 1.5373 to 1.5256, with little reaction to the UK goods trade balance data which showed a smaller-than-expected deficit in April. There is a risk event heading into Wednesday’s speech by Bank of England Governor Mark Carney at Mansion house.

The yen extended gains versus the dollar due to risk aversion in the markets. In addition to Greek uncertainty, the disappointing Chinese inflation data today did not help with market sentiment. The dollar fell to a low of 123.85 yen, moving further away from Friday’s post-nonfarm payrolls high of 125.84 yen. Despite recent dollar weakness, the greenback is expected to regain momentum as speculation grows that the Federal Reserve could raise interest rates later this year.

Meanwhile, the JOLTS data released today showed that the number of job openings in the US rose to 5.4 million in April, which was the highest since records began in December 2000.

The Australian dollar was mostly flat today versus the greenback as investors were cautious ahead of Wednesday’s speech by RBA Governor Glenn Stevens. The aussie traded between 0.7645 and 0.7722.



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