The US dollar was back on the defensive on Wednesday, as Greece lashed out against creditors for rejecting its latest reforms, signalling that a bailout agreement may be in doubt after days of progressive dialogue.
The US dollar weakened against a basket of global currencies, as the euro consolidated higher following sharp losses earlier in the week. The dollar index bottomed out at 94.93 on Wednesday following back-to-back gains. The dollar index would subsequently consolidate at 95.15, declining 0.3%.
The EUR/USD exchange rate rallied to a daily high of 1.1235. It was at 1.1203 at the start of the New York session, up 0.4%. The pair is likely to face technical resistance at 1.1235, the daily high, followed by 1.1349, the high from Tuesday. On the downside, initial support is likely seen at 1.1154, the daily low, followed by 1.1135, the low from Tuesday.
The dollar also lost ground against the British pound, as the GBP/USD rose 0.2% to 1.5753. The USD/JPY was virtually unchanged at 123.83.
In economic data, the US economy contracted in the first quarter, the Department of Commerce confirmed on Wednesday. First quarter gross domestic product declined 0.2% annually, up from the 0.7 percent contraction reported last month.
The US economy is projected to grow between 1.8% and 2% in all of 2015, according to the Federal Reserve’s latest economic projections. That range was revised down from the March estimate of 2.3% to 2.7%.
Revised GDP data showed a bigger than expected increase in consumer spending, which accounts for more than two-thirds of US economic activity. Consumer spending increased 2.1% in the first quarter, up from a previous estimate of 1.8%.
In European data, German business confidence fell to a four-month low in June, the Ifo institute reported on Wednesday. Ifo’s business climate index fell to 107.4 in June from 108.5 in May. That was the lowest level since February.
Germans may have more to worry about if talks between Greece and international creditors break down this week. The troika rejected Athens’ latest reform plans and offered a counter-proposal that angered Greek Prime Minister Alexis Tsipras.
“This strange stance may hide two possibilities,” Tsipras explained before leaving for Brussels. “Either they don’t want an agreement or they are serving specific interests in Greece.”
Greece owes the International Monetary Fund €1.6 billion on June 30, but will be unable to meet its loan obligations without a new bailout agreement. According to reports, Greece’s pension system value-added taxes are the main sticking points in the ongoing negotiations.
Based out of Toronto, Canada, Husni Sam Borji is senior macroeconomics analysts who contributes regularly to TradersDNA, where he examines the global financial markets. Husni Sam has authored dozens of government reports and industry whitepapers, as well as thousands of financial articles. Husni Sam holds a BA from the University of Windsor and a Master’s degree in Economic Public Policy from McMaster University.
His expertise includes macroeconomics, fundamental analysis, industry research and global political economy.