Markets React and then Cool Following Greek Elections

The New Democracy has managed to win the elections in Greece that took place on Sunday, June 18, 2012. In these governmental elections, the New Democracy party took the lead to the relief of investors around the world. This party has previously reaffirmed its commitment to austerity measures and bailout requirements. After news of the Greek elections came out, the euro briefly rose until the rise was tempered by Spanish and Italian bond problems.

Spanish bonds have managed to hit a new euro-era high of 7.3 percent. Investors continue to be concerned about the Spanish banking sector and government debt in Spain. A bond auction is scheduled to be at 8:40 GMT, but this auction is not expected to relieve the majority of the Spanish crisis. Borrowers believe that Spain is pushing its borrowing costs to unsustainable levels.

Surprisingly, the worries over Spain come just two weeks after leaders within the European Union made the decision to loan Spain 100 billion euros to help their ailing banking sector. Although these sources of aids have helped the market, they are not enough. Continued Spanish concerns have only served to weaken the euro.

Spain is currently the fourth-largest economy In Europe and is larger than any other bailout undertaken by the Eurozone to date. Investors are concerned about the sustainability of Spain and the Eurozone in the coming months.

Investors believe that Spain will pay record high borrowing rates this week. The Spanish government plans on unleashing two to three billion euros on the marketplace in an effort to tame their finances. The auction will allow investors to place bids on 12-month and 18-month government debt.

Currently, the euro is at a rate of $1.2593. After the recent Greek elections, the euro reached a rate of $1.2748. This rate tumbled after the elections as a part of its worst showing in the past few weeks. Many traders still believe that the euro may rise against the dollar this week. The Federal Reserve is set to meet early this week and discuss ways to deal with the market. Investors around the world believe that the Federal Reserve may step in and provide quantitative easing for the marketplace. After dismal labor and consumer reports, the Fed needs a new way to improve market expectations. Investors await any directive by the Fed in the hopes that it will improve the value of the euro against the dollar.

Banks in Tokyo agree with these expectations of the marketplace. Operation Twist was expected to provide relief through long-term bond-buying. The past few months have shown that the results from this experiment are dismal and disappointing at best.

On the bright side, the euro has recovered from the two-year low it fell to on June 1. Part of this drop was driven by the general weakness of the United States dollar and speculation of future Federal Reserve measures.

The Yen Falls

Earlier this month, market concerns about the euro and the dollar led investors to turn to the yen as a safe haven. As doubts about the euro fall, the yen is no longer needed as a safe place to store money. Today, the euro was 99.47 against the yen. In comparison, the yen reached 78.96 against the dollar. This marked a 0.2 percent decrease against the dollar for the yen. The recent fall in the yen’s rate has come as a relief for Japanese exporters. Earlier this month, Japan was in the process of creating new policies that would depreciate the yen. Following the economic recession and the 2011 tsunami, Japan wanted to depreciate the yen to improve their global exports. As investors scoured the market for a safe haven, the yen rose earlier this month.

Dollar Index Remains the Same

Comparatively, the dollar index is currently at 81.852 which is a very small change from earlier last week. It hit its one-month low at 81.188 last week and recovered to today’s rate.

The Australian dollar fell 0.3 percent today to end at $1.0104. This was a level just underneath a five week high of 1.0143. The South African Rand also fell during trades in the latter half of the trade. The Rand had previously reached a high level for the week after news of the Greek elections. As markets cooled over the recent news, the Rand settled down to lower levels by the end of the day.