Daily Commentary: Dollar Weakens On Profit-Taking

 | Feb 10, 2015 03:58AM ET

Dollar weakens on profit-taking The dollar weakened against most G10 currencies despite a further rise Fed funds rate expectations and deepening concern about the Greek situation and Ukraine tensions. I can only assume that it was caused by profit-taking after the dollar’s payroll-induced bounce on Friday, as there was no fundamental news behind the move. Newswire reports attribute the dollar’s decline to risk-aversion owing to increased tensions, but that is clearly not true, as the best-performing currencies were the high-beta NZD and AUD, while the safe-haven JPY and CHF lagged behind.

Greek Prime Minister Tsipras vowed to keep on with the program that his government was elected on, namely allowing the current bailout program to expire on schedule at the end of this month while attempting to secure a new program. The Greek government will seek a “bridge agreement until June.” Meanwhile, German Chancellor Merkel rejected Tsipras’ plan, saying the current program was “the basis of any discussions that we have.” She added that “what counts” is the proposal “that Greece puts on the table” at tomorrow’s eurozone finance ministers’ meeting. But eurogroup head Dijsselbloem last week ruled out a bridge loan, so tomorrow’s meeting is likely to reject the Greek proposal. Thus the meeting is shaping up to be a key pressure point for the markets.

It’s notable though that while Greek problems are seriously affecting Greek assets, particularly bank stocks and bonds, the euro remained in a tight range vs USD yesterday. Yesterday’s range was only 0.8%, exactly in line with the average for the last six months. It looks as if the FX market may be discounting a successful conclusion to the very difficult talks that lie ahead. I agree that the two sides are likely to come to an agreement somehow, although it’s still hard to see how.