MW: Euro rises to 2-week high as Greeks approves plan
By Deborah Levine and William L. Watts, MarketWatch
NEW YORK (MarketWatch) — The euro rose to the highest level in two weeks against the dollar on Wednesday on reports that Greece’s parliament approved an austerity plan deemed necessary to allow the debt-strapped country avoid default.
The 300-member parliament was expected to vote Wednesday afternoon on a 78 billion euro ($111 billion) package of additional austerity measures and government asset sales amid anti-austerity demonstrations on the second day of a nationwide strike. Read "What happens if Greece votes no on austerity"
The euro EURUSD +0.18% rose as high as $1.4448, then dipped to $1.4389 after the vote. It’s still up from $1.4366 in late North American trading on Tuesday. See real-time currency quotes and tools.
The dollar index DXY -0.32% , which measures the performance of the U.S. unit against a basket of six currencies, fell to 74.846 from 75.059 late Tuesday.
Against the Japanese yen, the euro EURJPY -0.30% rose 0.2% to buy ¥116.84. The single currency EURGBP -0.01% inched up 0.1% against the British pound.
European and U.S. equity markets added to Tuesday’s gains, while spreads between German government bonds, or bunds, and most peripheral euro-zone bonds narrowed, as investors unwound safe-haven flows.
Kit Juckes, head of forex strategy at Societe Generale, said investors had built up short positions in risk-associated assets, such as equities and the euro, leading to a short-covering rally as market participants began to anticipate a “yes” vote by the Greek parliament. If the plan is approved Wednesday, lawmakers will still have to vote Thursday on legislation implementing the measures.
“A positive outcome is more likely than a negative one, and has a correspondingly smaller impact” Juckes said, in a note to clients. A ‘no’ vote “takes [euro/dollar] down through $1.40 and into freefall. ‘Yes’ allows us to look forward to the next vote, tomorrow. Maybe $1.45 will be tested again.”
Approval of the plan is a prerequisite for the release of a delayed €12 billion tranche of financial aid from the European Union and the International Monetary Fund that Greece needs in order to meet its July debt obligations. EU officials have warned that failure to pass the measures would result in default.
Analysts also noted that a proposal floated earlier this week by French banks that resembles the Brady plan doesn’t guarantee success. Read more on Greece debt, Brady plan.
The euro has recovered 1.6% against the dollar this week, erasing most of the month’s loss. The greenback has also been under pressure as U.S. economic data has come in on the weak side. Read more about dollar’s decline on Tuesday.
“The dollar struggled yesterday, falling back across the board, in part because of more optimism from Europe, but also because of more weak U.S. data and perhaps because of end of half-year flow,” said Adrian Schmidt, currency strategist at Lloyds Bank in London.
The market focus on Wednesday will be on the Greek vote, but the dollar index’s “serial failures” to break back above the 76.00 level suggest a fall back toward the June lows below the 74.00 level unless the austerity measures fail, Schmidt said.
Among other major currencies, the British pound GBPUSD +0.19% rose to $1.6046 from $1.5945 late Tuesday.
Against the yen, the dollar USDJPY -0.51% fell to ¥80.98, compared with ¥81.14 late Tuesday.
Deborah Levine is a MarketWatch reporter, based in New York.
William L. Watts is a reporter for MarketWatch in Frankfurt. Lisa Twaronite in Tokyo contributed to this report.
