In US trade, the euro continued to drift further away from the 1.30 level on continuing concern over Greece’s political instability, and speculation that Spain will embark on a process of partial nationalisation of one of its major banks.
As expected, the deadlock over the formation of a new government continues in Greece, raising the prospect of a new election next month after the radical Left Party gave up its bid to form the government when talks with the socialist PASOK Party failed. Evangelos Venizelos, leader of the PASOK Party and former finance minister, will receive the mandate to try to form the government on Thursday.
In other Greek news, the EFSF confirmed the release of €5.2 billion to Greece that will enable it to repay €3 billion in debt due on May 18. With an estimated €3 billion in its Treasury cash reserves, Greece is expected to run out of cash in July if it does not receive further disbursements from the EU, something that will be determined after sign-off from the Troika. Weighing into the debate, the ECB's Nowotny warned the Greek political parties by saying that the EU cannot help if Greece refuses to cooperate and that EFSF aid would be disbursed ’only with conditions attached‘. The other major talking point of the session was the Spanish government’s expected announcement (tomorrow) of the partial nationalisation of a major domestic bank and the need for up to €45 billion to recapitalise the banking sector.
Speaking on the issue, Prime Minister Rajoy said ’the government guarantees the stability of the overall banking system‘, in an attempt to reassure the bank's deposit holders. Having ended yesterday’s Australian trade around the 1.2980 level, the euro hit a US session low of 1.2912 before recovering to close at 1.2940. Upon reopening for the Asian session, the euro is little changed, continuing to trade in the mid-1.2940s.