- US dollar index surges on safe-haven demand.
- USDJPY reaches highest level since 2007.
- Oil prices, gold decline sharply.
- Risk of Grexit scenario weighs on markets.
The US dollar soared on Tuesday, while commodities tumbled as investors flocked to the safety of the greenback amid growing fears that Greece will default on its loans and exit the euro.
The US dollar index soared more than 1.3 percent to a daily high of 97.34. It would subsequently consolidate around 97.10, its highest level in a month.
The dollar appreciated across the board on Tuesday, rising more than 100 pips against the euro and British pound in intraday trade.
The EURUSD consolidated at 1.0884 in the New York session, down 0.9 percent.
Meanwhile, the GBPUSD consolidated at 1.5390, down 0.5 percent.
The USDJPY surged to its highest level since 2007, as traders bought the breakout above prior highs at 122.00. The pair surged to a daily high of 123.3300 and would later consolidate at 123.0555, up 1.2 percent.
Commodities traded inversely with the US dollar on Tuesday, with gold plunging below $1,200 an ounce.
Spot gold fell $18.51 to $1,188.08 an ounce. Gold futures were down more than $15 to $1,189.10 an ounce.
Oil prices also retreated, with West Texas Intermediate (WTI) falling below $60 a barrel. US crude tumbled 2.3 percent to $58.34 a barrel.
Brent for July delivery declined 2.5 percent to $63.86 a barrel.
Safe Haven Demand
Growing concerns about Greece’s bailout situation raised the dollar’s safe haven appeal at the start of the week. Greece and its troika of creditors are still far apart on a deal that would keep Athens funded and part of the Eurozone. Talks broke down last week in Riga, with the International Monetary Fund shooting down Greece’s assurance that a deal would be reached shortly.
There’s a growing probability that Greece will suffer a financial “accident,” according to Mohamed El-Erian, chief economic adviser at Allianz. The adviser also added that the impact of a Greece exit would not sink the Eurozone, given the latter’s preparedness in containing the risk of contagion.
Greece’s interior minister said over the weekend that his country would not be able to make a critical June payment to the IMF without a new agreement. The IMF is not confident Greece is able to pay the “whale amount” of its debt burden and has ruled out handing out more emergency loans in the future.