EUR USD (1.4170)
Eurozone finance ministers approved a €78bn bailout package for Portugal last night, but left a conclusion on Greece for the meeting in June. Participants’ comments mostly centred on the undesirable consequences of debt restructuring. Departing from that point, though, opinions were divided between those who think Greece needs more austerity and reform and those who would allow a maturity extension on its loans in addition. Either way, the decision to shelve the issue until June gives Greek officials time to implement more measures and presumably to remedy any shortfalls in tax collection. Meanwhile, the US struggles with its own debt issues – yesterday the $14,290bn borrowing limit was reached and the Treasury Secretary requisitioned $12bn from government pension funds to serve as a bridge loan. He warned of ‘catastrophic economic consequences’ if the ceiling is not lifted. Republicans are expected to deny any such proposals until the new August deadline, in order to improve chances of enacting their own cost-cutting measures.
Policymakers on both sides of the Atlantic seem therefore to be rolling key decisions into the future, diminishing somewhat the perceived scale. Few investors believe the US will find itself with no available funds, but the EU situation is seen as complicated by an eventual change of leadership at the IMF. The euro is still at risk for further weakness to 1.3910 or possibly to 1.3800, and near-term traders will likely be apt to sell the euro ahead of its stability hurdle at 1.4410.
Market Bias Index
The euro remains undervalued in traders’ perceptions after yet another selloff on Friday. The yen now carries the most overvaluation bias of all the major currencies.
Deutsche Bank – Fixed Income Research – Global