The euro appreciated vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.3365 level and was supported around the $1.3280 level. As expected, the European Central Bank did not announce a change to its monetary policy today and European Central Bank President Trichet reiterated views he has made in recent policy statements. The big news in the eurozone remains the worsening situation in Greece. There are reports that western banks have pulled their repo lines with Greek banks, reducing the ability of Greek banks to secure funding in the international capital markets. Trichet today said the Greek situation is not even an issue but added responsbilities must be undertaken to contend with the problem. The capital markets might disagree with Trichet's assessment of Greece's worsening problems, however, as Greek assets depreciated significantly today. Spreads on five-year Greek credit default swap spreads blew out by 55bps during the European session and Greek cash bonds also moved lower with yields on 10-year Greek bonds reaching 7.5% today - their highest level since the advent of the euro. European Union finance ministers will convene in Madrid on 16-18 April and G20 officials convene 22 April ahead of the annual IMF and World Bank meetings on 24-25 April. The most pressing test for Greece will come on 19 May when some €8.1 billion in debt comes due. It is estimated that at least two syndications would be required to refinance the maturing debt and there is growing concern that investors may have insufficient appetite for more Greek paper, even at higher yields. Credit default swap spreads on other heavily-indebted countries including Spain and Portugal also widened. The ECB also announced a more liberal collateral eligibility policy that is partially designed to assure that Greek debt can be utilized in repo transactions into 2011. Data released in the eurozone today saw February retail sales off 0.6% m/m and off 1.1% y/y. In U.S. news, Minneapolis Fed President Kocherlakota reported the Fed needs to retain supervisory powers and said banks with large amounts of commercial real estate risk-exposure face a correspondingly elevated risk of failure. This threat could well lead to continued declines in bank lending, which could curtail the recovery. Federal Reserve Governor Tarullo said the need to low rates will not diminish soon, reiterating dovish comments made by Fed Chairman Bernanke yesterday. Data released in the U.S. today saw weekly initial jobless claims climb to 460,000 from a revised 442,000 while continuing jobless claims fell to 4.550 million from 4.681 million. Also, March ISCS chain store sales were up a significant 9.0% y/y. February wholesale inventories data will be released tomorrow. Euro bids are cited around the US$ 1.3175 level.
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