Fed Policymakers Discuss Exit Strategies
The US dollar came close to a seven month high against a basket of major currencies on Thursday after the minutes of the FOMC meeting showed that Federal Reserve policymakers had discussed exit strategies for stimulus programs. The troubled euro fell vs. the dollar and the pound was pressured by economic data that showed a sharp decline in UK public finances. Experts are concerned that the harsh measures Greece needs to take to address massive deficits could slow euro zone growth and recovery and force the European Central Bank to postpone tightening monetary policy. Tom Levinson of ING stated, “ECB tightening risks being delayed, and yield differentials are playing in favour of a lower euro/dollar.”
Fierce Opposition to Aid For Greece
Fiscal problems in Greece continue to weigh on the already troubled euro. On Wednesday Greek Prime Minister George Papandreou said that Greece is not seeking a bailout but needed ‘breathing space’ to cut deficits and borrow “on normal conditions”. On Tuesday European finance ministers gave Greece until March 16th to show that budget cutting measures are being implemented. Greece’s problems have caused sharp divisions in the Euro Zone. A recent German poll showed a sizeable majority of Germans oppose any aid to Greece and a Dutch poll showed similar results. German Chancellor Angela Merkel’s government remains opposed to Greek aid despite fears that failure to aid Greece could damage the euro. Reaction to the German stance has been bitter in Greece. One leading German newspaper has described Greece as a nation of lazy cheats and said that Greece should be “thrown out of the euro on their ear.”
IMF to Sell Tons of Gold
A plan by the International Monetary Fund to sell gold on the open market has put downward pressure on the Aussie dollar and other commodity based currencies. The IMF said it would sell 191.3 tons of gold on the open market pushing down bullion prices. Jonathan Cavenagh of Westpac stated, “The gold sale news is weighing on the Aussie especially against the U.S. dollar which is seeing a biddish tone. We have a month-end target for 82 for the dollar index and given the sovereign risks surrounding the euro and the macro economic pulse getting better for the U.S., we would see every dip in the dollar as a buying opportunity.” After the IMF announcement spot gold dropped and dragged both the Aussie and Kiwi dollars down. The Kiwi dollar fell 0.2% to $0.7006 and the Aussie fell 0.2% to $0.8960 .
