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Dollar Rules, Greece Sinks the Euro

Posted by Joseph Trevisani on Dec 29, 2014 5:20:00 PM

The current troubles in Greece may not shake the foundations of the euro zone as they did three years ago when many were predicting the exit of the Mediterranean country from the European currency, but they are still potent enough to keep the euro on the defensive. The united currency sank to its six consecutive month of losses against the dollar and a two year low at 1.2142. 

The government of Prime Minister Antonis Samaras lost a third vote in parliament today for the Greek President and set new elections as required by law.

Mr. Samaras' New Democracy party is trailing the oppositions Syriza in the polls. Alex Tsipras, its leader has said that Greece must renegotiate its bailout agreements and plans to campaign on that issue.

Greece has borrowed 240 million euros from the IMF, the EU and the ECB across three funding agreements which require substantial austerity from the Greek government. Greek unemployment is over 25 percent and many in the nation blame the bailout agreements and the Samaras' government for the country's economic plight.

The election also complicates ECB President Mario Draghi’s campaign to bring full quantitative easing liquidity to the 18-member currency union. He needs to obtain permission from the bank's governing council to buy EMU member sovereign debt, a move opposed by Germany.

Yields on Greek government debt soared, the 10 year bond reached 9.5 percent, the highest in over a year and the nation’s ASE Stock Index plunged as much as 11 percent after Prime Minister Samaras failed to persuade the parliament to support his candidate, Stavros Dimas, for head of state. Samaras said he will ask for the election to be held on January 25th.

The euro has fallen 11 percent against the dollar since early May, as the European economy has stagnated, the central bank has cut interest rates and markets anticipates an expanded stimulus program in the New Year. The ECB meets next on January 22nd. 

In contrast, the U.S. Federal Reserve is expected to begin raising its benchmark Fed Funds rates for the first time since 2006 sometime next year. The speculation on the date for the first hike ranges from April to the end of the year. 

The dollar has been the beneficiary of economic travails in Europe, Russia, Japan and elsewhere. With just two more trading days left in the year, the greenback is set to gain against all 31 of its major trading counterparties this year, the first time that has happened in data going back to 1989. 

Joseph Trevisani

Chief Market Strategist

WorldWideMarkets Online Trading

Charts: Bloomberg

eur dec 29

greece 10 yr dec 29

ase dec 29


 

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