US Dollar surges on despite a possible solution to Greek debt

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The US Dollar continued to be the star performer on Friday, building on it's already impressive streak. In less than two weeks, the US Dollar has strengthened by almost 3% against Sterling, moving from £/$ 1.6440 on 24th July to reach £/$ 1.5950 on 24th July as investors worried about the Eurozone sought the US Dollars protection.

The US Dollar was helped by Friday's US data avoiding any further embarrassment for the US economy. First quarter gross domestic product growth was confirmed at 0.5%, which equates to an annual growth rate of 1.9%, and durable goods orders grew by 1.9% in May.

As last week came to an end it seemed as though all was not lost for the Greek bailout. The French banks have offered to roll over 50% of their loans to Greece for a 30-year period in an attempt to prevent Greece going under and at the same time investing 20% of maturities in high-quality investments as a partial insurance policy.

The French therefore hope that other Eurozone governments will stump up the remaining 30% in order to avoid the danger of contagion. With Chinese Premier Wen Jiabao currently on his 

European tour, Eurozone government heads will hope that China will become part of the bail out to help keep afloat the currency of one of China's biggest trading partners.

With French banks apparently ready to forgive a third of their loans to Greece, and China hopefully willing to dig deep into it's pockets, the Euro has two more ropes to cling to. Whether these actions are enough to prevent a Greek default long term remain to be seen; in the short term though it should be enough to support the Euro. 

As mentioned, the US Dollar was the best performer on Friday's foreign currency exchange markets but the Euro certainly wasn't the worst. The commodity dollars (Australia, New Zealand and Canada) all suffered as equity and commodity prices drop as investors grow increasingly nervous about the slowing global economy and how that slowdown might be worsened by problems in the Eurozone. 

Despite an increase in UK mortgage approvals and a smaller than anticipated public sector net borrowing figure which gave a glimmer of hope for the UK economy, Sterling suffered following the latest minutes from the Bank of England's MPC last week as some members suggested another round of QE would not be out of the question. The mention of QE saw Sterling drop as the markets have now priced out a rise in interest rates in the medium-term.

This week has started at a leisurely pace with New Zealand already reporting a less-than-expected trade surplus for May. There is no UK data today and nothing from the Eurozone, with US personal income and spending to come later and that's it.