Rise in Risk Aversion

The yen and dollar rose broadly against other major currencies on Friday as investors questioned the speed and strength of global recovery. Falling stocks and commodity prices triggered a rise in risk aversion as investors dumped risky positions in favor of the safe haven of the dollar and yen. The euro was pressured by ongoing Greek fiscal problems and remarks by ECB President Trichet and German Chancellor Angela Merkel. US data indicated a rise in manufacturing and stable consumer price inflation which also helped to lift the dollar. Euro zone finance ministers believe that the Greek government repeatedly misled them about the size of Greece’s debt and are willing to impose sanctions against Greece if necessary. In late trading in New York the euro fell 0.9% trading at $1.4373. Dan Cook of IG Markets in Chicago stated, “What is really crushing the euro is additional concern about the serviceability of the massive amount of debt rung up in Greece.” Cook also said that until Greek fiscal problems are resolved, “we will likely see a lot of selling pressure on the euro.” The euro fell 1.3% against the yen trading at 130.51 yen.

US Data Meets Expectations

Analysts said that Friday’s US data met most expectations and showed improvement in regional manufacturing and stable consumer prices. Data also showed that consumer sentiment was little changed. Michael Woolfolk of BNY Mellon in New York stated, “It’s not a surprise to see better-than-expected manufacturing data. A point of this recovery, outside of fiscal stimulus, is that the U.S. manufacturing sector is already on the rebound.”

EU Problems Not Limited to Greece

Persistent Greek fiscal problems are expected to weigh on the euro into 2010. Problems in other EU countries, most notable Portugal, Ireland, Italy, and Spain, have also pressured the currency. Dean Popplewell of OANDA said, “I do not think the market has fully priced in the extent of the problems in Greece including the other troubled countries in the euro zone — Portugal, Ireland, Italy, and Spain. I don’t believe the situation is contained and I think investors will still demand U.S. dollars as some form of safe-haven.” Monday’s trading is expected to be thin as US markets close for the Martin Luther King holiday.