Merkel need to see Greece tough measures to deal with deficit

The Euro slipped against all its major currency counterparts yesterday as uncertainty intensified over how and when Greece would get financial aid sought last week to avert a potential sovereign debt default. The spread between Greek and German 10-year government bond yields hit a new 12-year high of 679 basis points on Monday, indicating market concern over the implementation of the aid package and the conditions attached to it.

Comments from Germany, potentially the biggest contributor to any aid package, helped keep markets nervous after Greece on Friday requested an aid package drawn up by the European Union and International Monetary Fund be implemented. German Finance Minister Wolfgang Schaeuble said Germany was aiming to free up financial support for Greece before a May 19 deadline, but the opposition Social Democrats said they would not back an accelerated parliamentary process to approve the aid.

The single European currency retreated from the highest level in more than a week against the Japanese Yen on concern that the joint EU-IMF €45billion rescue package won’t be enough to stop the deficit crisis from spreading. After hitting 126.298 Yen, its highest price since April 16th, the Euro slipped to 125.042 Yen. The EUR/JPY closed at 125.842, down 0.13% from the day’s open.

The Euro’s losses extended across the board as it neared a three month low against the British Pound after German Chancellor Angela Merkel stated that she won’t release any emergency funds for Greece until the nation has a “sustainable” plan to reduce its shortfall. After plunging to a low of 0.86016, the EUR/GBP recovered to close at 0.86620, down 0.27% from the day’s opening price.

After hitting a daily low of $1.32901, the Euro recovered against the greenback to close yesterday at $1.34026, up 0.35% from its opening of $1.33561. However, in the Asian trading session this morning, the single European currency slid to hit a low of $1.33557.

The European Central Bank President Trichet will speak on multiple occasions this week, mostly while on his trip to the United States. Any comments about the Greek debt crisis or the state of the economies will shake the Euro. He will speak later today at a conference in Chicago (13:15 GMT) and later this evening (2315GMT) at the Kellog School of Management in Evanston. Trichet returns to Europe and will deliver a speech in Munich this Thursday.

In early trading yesterday, the British Pound extended its rally from late Friday after slipping to a four-day low versus the US Dollar of $1.52938 in the forex online market. Last week’s volatile trading session ended with a disappointing figure in Britain’s growth. The U.K. economy grew half as much as economists forecast in the first quarter as winter weather hampered expansion, underscoring the recovery’s fragility two weeks before the election. The Prelim GDP report showed a 0.2% increase from the last quarter of 2009, when a 0.4% expansion pushed Britain out of the recession.

Yesterday, the pound strengthened against the dollar for the first time in three days after a report showed U.K. house prices increased for a ninth consecutive month, underpinning signs the economic recovery is gaining traction. The Sterling advanced versus 14 of its 16 most-traded counterparts after Hometrack Ltd. said the average cost of a home increased 0.2% from March. The pound gained 0.5% to $1.5450 (as of 1:20 p.m. in London) and appreciated 0.9% to 86.24 pence per euro, after earlier reaching 86.07 pence, the strongest since Jan. 28. The Pound closed at $1.54691, up 0.62% from its opening price.

This week, few economic events are scheduled that will several affect the value of the Pound. Early this morning (930GMT), the British Banker’s Association will release the number of new mortgages that they approved for home purchases. The BBA represents major banks that make up around 60% of total UK mortgage lending. This figure is generally considered a leading indicator of housing market demand as most home purchases are financed with a mortgage, so it provides an excellent gauge of how many qualified buyers are entering the market. Last month monthly approvals reached a peak of 35.3K; a rise of 39.3K is expected now.