US dollar and yen suffer after Greek election leaves eurozone intact

Publication date: 18 June 2012
Author: Mark Bolsom, Travelex

Greece’s pro-bailout party, New Democracy, came out on top following Sunday’s election’s thus eliminating the risk of its opposition party, Syriza, potentially forcing a break-up of the eurozone.

Investors immediately responded during last night’s Asian session by picking up more risky stocks and currencies at the expense of the safe haven US dollar and yen. Japan’s Nikkei, for example, advanced by almost 2% whilst the euro rallied to one-month highs against the US dollar. However, the overnight run into higher-yielding assets already looks to be running out of steam with analysts still concerned about Greece’s long-term future; the prospect of Spain still requiring a bailout is also very much a possibility.

Price action this morning also reflects caution ahead of this week’s event risk. Locally here in the UK, the pound’s late surge on Friday is in danger of collapse should inflation data tomorrow, Wednesday’s Bank of England minutes and Thursday’s unemployment figures point towards more monetary easing.

For broader markets, Spanish solvency is still in focus but attention has slowly been shifting back towards the US economy and the Federal Reserve’s next policy move. A marked slowdown in the world’s biggest economy in recent weeks has led to speculation the Fed will soon respond with more stimulus that would weaken the dollar, fragment the markets eurozone focus perhaps, and give risk-taking a boost. Traders are also gearing up for this week’s G20 gathering for any announcements in regards to a new co-ordinated liquidity programme that would help shore up still-jittery financial markets.