Forex: Tuesday’s review

Yesterday the euro fell to the lowest in almost four months versus the dollar as talks to form a Greek government failed, fueling concern the nation may leave the shared currency and boosting investor demand for safety. Greek President Karolos Papoulias’ meeting in Athens with political leaders failed to produce a government after an inconclusive May 6 vote. He called for a meeting  to form a caretaker government to lead the country until the vote. A second election threatened to extend the country’s political gridlock and reignited speculation Greece will renege on its pledges to cut spending, required by the terms of its 240 billion euros ($306 billion) in bailouts. It added to bets Europe’s sovereign-debt crisis will worsen.

The euro gained earlier after the European Union’s statistics office in Luxembourg said gross domestic product in the region stagnated in the first quarter compared with the prior three months. Germany’s 0.5 percent expansion at five times the pace economists had estimated helped offset weaker GDP in the euro area’s peripheral economies.

Sterling reached the strongest level against the euro since November 2008 as investors sought an alternative to the 17- nation currency. The pound gained 0.1 percent, erasing earlier losses, to 79.60 pence per euro before trading little changed at 79.72 pence.

EUR/USD: yesterday the pair fell to a figure, lowered below $1.2800.

GBP/USD: yesterday the pair fell to a figure, lowered below $1.6000.

USD/JPY: yesterday the pair rose above Y80.00.

European data for Wednesday starts at 0600GMT with German wholesale prices data and also ACEA new car registrations data. EMU data at 0900GMT includes the March trade balance as well as the final reading for April HICP. At 1300GMT, ECB President Mario Draghi is due to give the welcome address at an ECB colloquium in honour of Jose Manuel Gonzalez-Paramo, in Frankfurt. The Bank of England Quarterly Inflation Report is due at 0930GMT with Governor Mervyn King leading the usual press conference. US data starts at 1100GMT with the weekly MBA mortgage applications data, while at 1230GMT, the pace of housing starts is expected to rise to 685,000 in April after slowing in the previous two months. Canadian manufacturing data is due at the same time. US data continues at 1315GMT when industrial production is expected to rise 0.6% in April after holding steady in February and March. The weekly EIA weekly crude oil stocks data is then due, at 1430GMT. At 1545GMT, World Bank President Robert Zoellick speaks at the Economic Club of Washington, while at 1630GMT, St. Louis Fed President James Bullard speaks at the Lousiville branch of the Bank on the subject of "The U.S. Economy and Monetary Policy." Later, at 1800GMT, the latest Federal Open Market Committee Minutes are released.