By V. Phani Kumar, MarketWatch
HONG KONG (MarketWatch) — The U.S. dollar dropped against the euro and several other major currencies Monday as hopes that European leaders would sign off on Greece’s second bailout package and China’s monetary easing over the weekend moved some investors out of the safe-haven dollar.
The ICE dollar index DXY -0.64% , which measures the greenback’s performance against a basket of six other global rivals, fell to 79.082 from 79.334 late in North American trading Friday.
The euro EURUSD +0.58% was fetching $1.3216, up from $1.3156 late Friday.
“With investors already bidding up risky assets on the heels of China’s announcement, any progress on a second bailout for Greece will only add to the upside momentum,” said Kathy Lien, director of currency research at GFT Forex.
European Union finance ministers were due to meet in Brussels later Monday to decide whether Greece has done enough to receive the proposed €130 billion ($172 billion) aid package.
The fate of that package, without which Greece could potentially default in a matter of weeks, stood in question recently. But hopes for a final sign-off on the deal got a boost after German Chancellor Angela Merkel, Italian Prime Minister Mario Monti and Greek Prime Minister Lucas Papademos on Friday expressed confidence they will “find a solution to outstanding issues,” according to a statement from Germany. Read full story on the expected bailout agreement.
Still, Lien cited risks related to that agreement.
“We are hopeful, but if the Eurogroup comes up short, the euro will be punished severely for their incompetence. U.S. markets will be closed on Monday for President’s Day, but with China’s RRR cut and the Eurogroup meeting, it could still be a volatile trading day,” she said.
Investor risk appetite was also bolstered by the People’s Bank of China’s decision to cut major commercial lenders’ reserve requirement ratio (RRR) by 0.5 percentage points on Saturday. The move, effective Friday, was expected to inject about 400 billion yuan ($63.6 billion) in liquidity, potentially boosting banks’ ability to lend more.
The Chinese monetary decision was particularly well received, following some disappointment recently in the marketplace, where the RRR cut was expected sooner.
Asian stocks, as well as prices for some major commodities such as crude oil and gold, received a shot in the arm on Monday after the decision. Read more in Asia Markets.
Also reflecting improved investor sentiment, the Australian dollar AUDUSD -0.10% rose to $1.0782, from $1.0720 earlier in the day.
Among other major currency pairs, the British pound GBPUSD +0.10% was fetching $1.5875 from $1.5833 in U.S. trading late Friday.
Against the Japanese yen USDJPY -0.15% , however, the dollar rose to ÂĄ79.52 from ÂĄ79.47, after earlier moving near the psychologically important ÂĄ80 level.
