• Dollar skidded on Friday after the Greek loan deal
  • Eurozone to decide on Greek’s proposal today
  • Fed Chair scheduled to testify tomorrow
  • Bank of England concerned about the pound

Currency volatility spiked on Friday as the US dollar failed to hold on to its early gains after the much awaited news of a 4-month loan extension deal between Greece and the Eurogroup broke late in the day.  The dollar skidded lower against its European counterparts as the imminent possibility of Greece exit from the Eurozone became less likely for now.  The dollar had gained ahead of Friday’s meeting between Eurogroup and Greece as investors and traders sought safe-haven assets.

feb-23 graph

That said, the Greek bailout crisis may not be over.  Under the agreement, Greece is required to propose a list of specific austerity measures it plans to uphold.  Then, the EU Finance Ministers will hold a follow up meeting to decide if the Greek proposal is acceptable.  Therefore, there is a good chance of another flair up of the bailout crisis this week.

On this side of the pond, Fed Chairman Janet Yellen will be presenting her monetary policy report to the Senate Banking Committee on Tuesday.  Chairman Yellen’s testimony will likely set the market tone through the rest of the quarter. There’s considerable uncertainty about when the Fed is planning to start normalizing its monetary policy and raise the overnight interest rates.  If Chairman Yellen reports that the economy is at risk of a measurable slowdown this year then she may be inclined to wait on raising the interest rates. If so, the dollar could give up its recent gains this week.

EUR-USD has regained its footing on Friday afternoon after the news of a loan extension deal between the Eurogroup and Greece.  The currency pair is trading near 1.1400 early this morning. However, it is at risk of plunging to 1.1275 today as it did on Friday morning if the Eurogroup rejects today’s Greek proposal of austerity measures to be implemented during the 4-month loan extension period. Stay tuned.

GBP-USD is trading below 1.5400, partly in reaction to a disappointing January retail sales report on Friday.  The January sales dipped 0.3 percent from December.  The pound may have also lost some of its appeal as Bank of England Monetary Policy Committee member Ian McCafferty expressed his concern about the currency’s recent strength last week.  The February survey of 24 UK business sectors will be released this morning.

USD-CAD ran up to 1.2564 on Friday after the retail sales report revealed much weaker data than anticipated.  The retail sales plunged 2.0 percent in December following an unrevised 0.4 percent gain in November.  The drop in December was the worst month-on-month retail sales decline since April 2010.  There are no major economic reports or events scheduled for today.

AUD-USD is trading near a two-week high of .7846 early this morning.  Depressed commodity prices continued to dampen the Aussie dollar’s long-term outlook.

Have a great day!