Euro Dropped on Portugal Political Crisis, US Dollar Heavier on Trade and PMI Data - 4.7.2013

The single currency was negatively influenced yesterday by political crisis in Portugal, falling against the US dollar as low as 1.2923. Once more, unexpected political developments moved a major currency pair. Last night, Portugal’s foreign minister resigned and pressure was added on Prime Minister Pedro Passos Coelho, who said “I will not resign or abandon my country”. Portuguese 10 year benchmark bond yield rose above the 7%, which in previous cases was considered a mark signaling a bail-out is needed or lately bail-in is applied by troika. The EURUSD returned earlier today at 1.30 while later on today traders are anticipating ECB statement and should Mario Draghi use a dovish tone could increase risk appetite since EZ is still not in a recovery path.

The US dollar index was in general losing and found support earlier today at 83.10, even though ADP report yesterday was better than anticipated but Trade Balance and Jobless Claims weaker than projected, also ISM Non-Manufacturing PMI showed the slowest growth in the last 12 months, weighing on the greenback.The Japanese Yen strengthened as it is considered a safer currency amid Egypt tensions and Portugal’s political crisis with USDJPY falling back below 100, perhaps that have triggered a technical correction initiation.

Elsewhere, the British pound rebounded to cap at 1.5301 and currently is moving mainly in sideways ahead of the BOE policy statement. Mark Carney is the new President of BOE and that is its first meeting as head of the central bank. The interest rate and asset purchases facility are expected to remain at 0.5% and £375B respectively, but the statement may reveal new approach of handling inflation and unemployment and creation of contingent targets for BOE.