Dollar, Yen Gain on Risk Aversion
On Monday the US dollar and the yen advanced as investors sought the safety of the dollar and yen. Investors remain concerned about the delayed Greek talks with the EU and the IMF and fraud charges brought against Goldman Sachs. Greek officials were supposed to meet with representatives of the European Union, the European Central Bank and the International Monetary fund but the talks have been delayed by grounded flights due to the volcanic eruption in Iceland which has disrupted air traffic across Europe. Last Friday the U.S. Securities and Exchange Commission charged Goldman Sachs with fraud related to a debt product tied to subprime mortgages. Omer Esiner of Travelex Global Business Payments stated, “This is clearly a risk-averse market, with investors in a flight to dollar and yen assets. The main triggers are still the SEC’s bombshell on Goldman Sachs and the continued uncertainty about the Greek debt situation, specifically as to how any aid package would be applied or whether Germany would veto the package.”
Spreads at Record Levels
The premium investors are demanding to hold Greek debt rose to record levels due to uncertainties about details of the EU/IMF loan mechanism agreed upon earlier in the month. On Monday the euro was down 0.3% vs. the dollar trading at $1.3456 in New York and against the yen fell 0.3% to 124.10 yen. Analysts see risk aversion as dominant. Boris Schlossberg of GFT stated, “It seems like we are reversing some of the risk aversion trades from this morning as people get more comfortable with the Goldman news. Clearly, there is a higher degree of caution. But there has been no additional bad news on Goldman. So for now, investors are in a ’see-no-evil, hear-no-evil’ kind of mode.”
Iceland Volcano Disrupts European Business Events
The volcanic eruption in Iceland has crippled European air travel and is has disrupted several European business events. Talks between Greece and the EU and IMF have been delayed further adding to investor concerns about Greece’s debt crisis. The talks have been rescheduled for April 21st in Athens. Lost airline revenues are now estimated at about $300 million per day. Bundesbank President Axel Weber told German legislators that Greece may need more than the 30 billion euros ($40 billionUSD) promised by the EU. The IMF has pledged another 15 billion Euros to aid Greece.
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