Greenback Remains Strong

The Greenback has seen an unvarying rally
since the end of April, taking advantage from continuous mayhem in the Eurozone
and increase in US Treasury yields. Investors have attempted to steer clear US
economic and political worries as Europe remains centre stage. Furthermore the Dollar
successfully shrugged off a softer April retail sales report and a somewhat
more vigilant set of FOMC minutes.

A revival in April durable goods orders, new
homes sales and a relatively stable reading for Michigan confidence must bode
well for the Greenback’s current route and should remain unhindered. As the probability
for further uncertainty in advance of Greek elections next month, risk aversion
and the Dollar are set to remain high.

As you would expect from seeing the weekend
papers, it’s all about Greece and the political manoeuvrings ahead of second
round voting in mid June. The single European currency shows no sign of fight
back ahead of these elections. Despite a busy schedule of data releases this
will take back seat ahead of Greek news. Traders will have one eye on the May
German IFO survey and the flash readings in purchasing managers indices. The
PMI data will provide no assistance to the Euro, with the data consistent with falling
growth for the majority while the IFO is set to record a decline too.

In the meantime, there is growing pressure on
German Chancellor Merkel to agree to measures that were formerly prohibited at
an informal EU summit last week. Such methods consist of direct
recapitalisation of banks and/or unrestricted buying of peripheral country debt
by the ECB
and through the Eurozone rescue fund.

Over to the Far East and USD/JPY has been comparatively
steady in spite of an increase in US bond yields against Japanese JGB yields,
with increasing risk aversion serving to keep the JPY strong. The Bank of Japan
meeting this week has the potential to move the currency pair’s course but is doubtful
to do so. No action is expected at the policy meeting on Wednesday, leaving the
JPY with a firm bias.

Finally over to the UK where CPI figures will
take centre stage Tuesday morning where we are expected to see further declines
in the annual figure from 3.5% last month to 3.1%. The next day we have Bank of
England Minutes followed by UK GDP on Thursday will ensure a busy week for
Sterling in the middle part of this week.

Report by Philip Ryan