Forexpros – The U.S. dollar struck a three-and-a-half month high against the euro Wednesday and extended gains against almost all of its major counterparts as market sentiment was hit hard by fears over an escalation of the debt crisis in the euro zone.
During U.S. morning trade, the dollar rose to a three-and-a-half month high against the euro, with EUR/USD dropping 0.59% to hit 1.2928.
The single currency was pressured amid mounting expectations that a fresh round of elections in Greece is inevitable as attempts to form a coalition government fail.
On Tuesday, Alexis Tsipras, the head of Greece’s second-biggest party Syriza, stated that Greece’s financial aid package is null and void, fuelling concerns over a disorderly Greek default or possible exit from the single currency bloc.
Meanwhile, speculation arose that Spain is set to announce plans to support its banking system. The yield on Spanish 10-year bonds rose above 6% earlier, reflecting investor concerns over holding riskier assets.
Investors also remained concerned over whether French president-elect Francois Hollande’s focus on growth rather than austerity measures as a means to tackle the crisis could spark tensions with Germany.
The greenback was also higher against the pound, with GBP/USD slipping 0.07% to hit 1.6096.
In the U.K., a report indicated retail sales posted their biggest fall in more than a year in April, as unseasonably wet weather weighed on sales of summer clothing and outdoor goods.
The British Retail Consortium reported retail sales tumbled 3.3% year-on-year, following a 1.3% rise in March, confounding expectations for a 0.5% gain.
Elsewhere, the greenback was lower against the safe haven yen but pushed higher against the Swiss franc, with USD/JPY falling 0.22% to hit 79.69 and USD/CHF climbing 0.32% to hit 0.9265.
The greenback climbed to multi-month highs against its Canadian, Australian and New Zealand counterparts, with USD/CAD rising 0.19% to hit 1.0006,AUD/USD tumbling 0.41% to hit 1.0078 and NZD/USD retreating 0.56% to hit 0.7832.
Earlier in the day, Australia’s Prime Minister Julia Gillard said that the government will cut spending for the first time in 42 years, ending four years of budget deficits and giving the central bank flexibility to lower interest rates.
The comments came after official data showed on Tuesday that Australia’s trade deficit more than doubled in March, as commodity exports declined for a third successive month.
The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was up 0.25%, at 80.14..
In addition, Wednesday, official data showed that German exports and imports both hit record highs in March, fuelling hopes that the euro zone’s largest economy is weathering the effects of the debt crisis.
The Federal Statistics Office said exports increased by 0.9% to EUR91.8 billion, while imports rose 1.2% to EUR78.1 billion.
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