By Deborah Levine and William L. Watts, MarketWatch
NEW YORK (MarketWatch) — The euro turned lower against the dollar on Wednesday, after touching the highest level in two weeks, after Greece’s parliament approved an austerity plan deemed necessary to allow the debt-strapped country avoid default.
Traders had built in expectations of the plan passing, so are now reversing those bets ahead of another Greek vote Thursday on how to implement the measures.
The euro EURUSD +0.10% rose as high as $1.4448, then dipped to $1.4364 after the vote. It’s still up vs. $1.4366 in late North American trading on Tuesday. See real-time currency quotes and tools.
The dollar index DXY -0.04% , which measures the performance of the U.S. unit against a basket of six currencies, pared its decline to 74.931 from 75.059 late Tuesday. It had fallen to 74.651 before the vote.
Against the Japanese yen, the euro EURJPY -0.25% turned down by 0.3% to buy ¥116.01. The single currency EURGBP -0.04% also turned slightly lower against the British pound.
Greek Prime Minister George Papandreou on Wednesday secured the votes needed in parliament to approve a 78 billion euro ($112.2 billion) package of additional austerity measures and asset sales, while police clashed with protesters in central Athens. Read about Greece approving austerity package.
European stock markets also pared gains after the vote and short-term Treasury prices gained, pushing yields lower — both indicating a reversal of investor’s expectations for the plan passing. Read about Treasury bonds.
“There’s been a bit of a short-covering rally on the Greek vote,” said John Brady, MF Global’s senior vice president of global interest rate products.
Spreads between German government bonds, or bunds, and most peripheral euro-zone bonds narrowed during the session, as investors unwound safe-haven bets.
The cost to ensure Greek and Italian debt, based on their credit default swaps, also fell, according to Kathy Lien, director of currency research for GFT.
“Even though the euro failed to rally off the vote, the decline in Greek and Italian CDS spreads reflects relief amongst investors,” she said.
Approval of the plan was 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. Failure to pass the measures and obtain the aid would result in default, officials had warned.
Analysts 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.
“We can breathe a sigh of relief today that parliament has approved the austerity package, which was a necessary step for European policy makers to move forward, but the sell-off in the euro after the vote suggests this is not enough,” Lien said.
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 +0.17% rose to $1.6006 from $1.5945 late Tuesday.
Against the yen, the dollar USDJPY -0.37% fell to ¥80.75, compared with ¥81.14 late Tuesday.
