The US dollar hit an 11-month high against a basket of currencies as Greece's debt problems continued to ignite a wave of risk aversion. Concerns over Portugal's downgrade also reflected wider credit risks in the Euro Zone, fueling safe-haven demand for the greenback. Investors are feeling a bit of uncertainty and pushing the US currency higher as a result.
The euro hit a one-year low against the US dollar as investors worried the Euro Zone debt crisis could spread after Tuesday's downgrades of Greece and Portugal's credit ratings. German lawmakers reported that the Greece bailout package could total EUR 120B over 3 years after meeting with IMF officials. The single currency was hurt by a surge in Greek government bond yields -- driving their spreads over German benchmarks to new records -- a day after ratings agency Standard & Poor's cut Greek debt to junk level and downgraded Portugal. Portugal's downgrade could create cracks in the Euro system and further batter the euro. The single currency should remain under pressure given a lack of clarity on the Euro Zone outlook and whether there will be more contagion to other member countries.
Sterling fell against the US dollar as the risk of fall out from Greece's deepening crisis put the focus back on the UK's fiscal problems and on the possibility that no political party will win a majority at next week's election. Investors fear that if no one party wins an outright majority the incoming government may struggle to take tough measures to cut the UK's deficit, which is expected to come close to 12 percent of gross domestic product. A hung parliament in the UK is looking likely, which could leave sterling susceptible on the downside.
The Japanese yen weakened against the US dollar despite positive economic news on hopes of the IMF propping up debt ridden Greece with more funding than initially stated. Government data from Japan showed retail sales rose for the third straight month in March to 4.7%.
The Canadian dollar recovered some lost ground against the US dollar a day after falling 1-1/2 cents, as downgrades of Greek and Portuguese debt prompted investors to flee riskier assets. Although derailed by global factors yesterday, the Canadian dollar should remain strong from a domestic perspective as data has been quite positive.
The Australian dollar regained some ground against the US dollar after data showed underlying inflation was persistently higher than forecast, leading some to bet on another interest rate hike next week. However, anxiety over Greece's escalating debt crisis discouraged investors from making too bold of a bet. The New Zealand dollar regained some losses against the US dollar but remained vulnerable by nervous, risk-averse investors ahead of the Reserve Bank of New Zealand's (RBNZ) rate review on Thursday. The RBNZ is expected to keep rates unchanged at a record low of 2.5 percent but investors are on guard for any comment on when it might first hike.
10-Year Treasury Note Yield: 3.726%
Dow Jones Industrial Average: 10,969.87 - 19.20