The dollar is gaining ground on Monday, after overcoming some initial weakness versus its European rivals. The pro-bailout party won a narrow victory in the second round of elections held in Greece on Sunday. The election had been a source of uncertainty in past weeks, largely due to a potential Greek exit from the Eurozone.
Now that the Greek election is over and done with, investors shifted their focus to Spain and Italy. The yield on a 10-year Spanish government bond rose back over 7 percent today, while the yield on an Italian 10-year government bond increased to 6 percent.
Spanish banks' bad loans increased to an 18-year high in April, Bank of Spain said Monday. Around 8.72 percent of the loans held by banks were unpaid for more than three months, up from 8.37 percent in March. The ratio was the biggest since April 1994.
Spain's banks may receive the EUR 100 billion aid offered by the European Union through the European Financial Stability Facility (EFSF), German daily Die Welt reported Monday. Using the EFSF instead of the permanent rescue fund European Stability Mechanism (ESM), which will be operational from July, will help to increase the total capacity of the region's financial firewall to EUR 800 billion, the report said.
The conservative New Democracy party won 129 seats in Greece, still short of a majority in the 300-member house. New Democracy leader Antonis Samaras declared victory in the election and called parties to join a national salvation government, "as soon as possible."
Delivering a victory speech on Sunday night, he said Greeks had voted to stay in the euro, and termed it a victory for "all Europe." He said Greece would honor its obligations to its lenders.
Meanwhile, the Eurogroup said in a statement on Sunday that Greece's international creditors might return to Athens once the new government is in place to assist the country in its fiscal adjustment effort.
The troika, consisting of the European Union, the European Central Bank and the International Monetary Fund, will return to Athens as soon as a new government is in place "to exchange views" with the new government on the way forward and prepare the first review under the second adjustment program, it said.
Reports that emerged over the weekend citing the German weekly Der Spiegel said the European Union is preparing a framework for the joint issuance of the short-term common debt instruments for the currency bloc. The magazine reported that states can issue the so called "euro bills" up to a predetermined percentage of economic output.
The greenback sank to nearly a one-month low of $1.2746 versus the Euro after the Greek election result was announced, but has since bounced back to around $1.2570.
A leading indicator of the French economy declined in April, after growing in the previous two month, data from a survey by the Conference Board showed Monday. The leading economic index decreased 0.1 percent month-on-month to 113.7 in April, after rising in the previous months. The index increased a revised 0.4 percent in March and 0.6 percent in February.
The buck briefly touched nearly a one-month low of $1.5741 versus the pound sterling early Monday, but has since rebounded to around $1.5660.
The Bank of Japan on Monday kept its economic view almost unchanged saying that economic activity has started to pick up moderately as post-quake reconstruction continued to support domestic demand.
The economy is expected to return to a moderate recovery path buoyed by firm domestic demand and recovery in overseas economies, the central bank said in its monthly economic report.
The dollar rebounded from Friday's low of Y78.603 versus the Japanese Yen early Monday and reached a high of Y79.297.
Homebuilder confidence in the U.S. has seen a modest improvement in the month of June, according to a report released by the National Association of Home Builders on Monday, although the increase came after a downward revision to the reading for May.
The report showed that the NAHB/Wells Fargo Housing Market Index crept up to 29 in June from a downwardly revised 28 in May. Economists had expected the index to come in unchanged compared to the 29 originally reported for the previous month.
by RTT Staff Writer
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