Greece’s financial crisis and signs of growing opposition to austerity in Spain sent the euro to its lowest level in a month on Tuesday, while shares and commodities took a knock as the dollar pushed higher.
Europe’s main markets returned to action after a long weekend with the mood unsettled by Sunday’s strong local election showing by anti-austerity parties in Spain and with the clock ticking down on Greece’s bid to get aid from the euro zone to stay afloat.
Wall Street ESc1 was expected to open down 0.2 percent, having also been closed on Monday and with the dollar still on the up after confident-sounding comments from Federal Reserve head Janet Yellen and solid inflation data at the end of last week.
Traders were bracing for a deluge of data ranging from manufacturing and services to house price and consumer confidence figures to gauge the recent state of the world’s largest economy. ECONG7
The first flurry of numbers came from goods orders, which showed a solid increase in business investment plans for a second straight month.
“The outlook for Fed policy normalisation is again gaining traction and certainly with Greek risk there is nothing that would dampen this trend,” said Ulrich Leuchtmann, head of FX strategy at Commerzbank in Frankfurt.
“There is good reason for continued dollar strength but if it goes too quickly we will see the same thing as happened in March and early April because there will be the question about what effect it will have (on the U.S. economy).”
The dollar was hovering at an eight-year high against the yen JPY= and a one-month peak against a basket of other big currencies .DXY as the data and the Wall Street opening bell approached.
Europe’s main stock markets <0#.INDEXE> had clawed back most of their early losses, while the euro EUR= was back above $1.09 as the sell-off in southern euro zone debt markets eased despite the Greek and Spanish jitters. [GVD/EUR][FRX/]
The earlier flight into safe-havens meant Switzerland’s 10-year bond yields CH10YT=TWEB were back in negative territory for the first time this month, though. Spanish ES10YT=TWEB, Portuguese PT10YT=TWEB and Greek bonds GR10YT=TWEB were all still in the red despite being calmer.
A senior German official who spoke on condition of anonymity said on Tuesday there were some “encouraging” signs from talks with Greece and doubted it would default on a payment due to the IMF in early June.
Separately, it emerged that deputy finance ministers would hold a teleconference on Thursday to follow up on days of Greek negotiations with the International Monetary Fund (IMF), the European Central Bank and European Commission.