WSJ:WORLD FOREX: Euro Holds Gains On Relief Over Greek Aid
TOKYO (Dow Jones)--The euro on Friday held onto most of its gains made overnight on news of a comprehensive bailout package for Greece, but doubts about a long-term solution for the euro zone's debt problems made traders in Asia wary of pushing the single currency higher.
The EUR159 billion bailout "went beyond market expectations," BNP Paribas said in a research note, calling the agreement "a major step towards stabilizing the markets and a resolution of the debt crisis."
At 0445 GMT, the euro was at $1.4390 after it jumped to $1.4440 in late U.S. trade on Thursday on the back of the bailout announcement. Against the yen, the euro was at Y113.12 from Y112.98.
Leaders of the 17 euro zone member countries agreed to enhance the European Financial Stability Facility, giving the bailout fund more flexibility in its purchases and allowing it to buy sovereign debt in the secondary market if deemed necessary. The European Central Bank can also accept Greek bonds as collateral for its fund provision even if Greece is placed on selective default by rating agencies.
Traders were, however, cautious about the euro's prospects ahead.
"The euro is likely to react negatively when rating agencies actually put Greece into default", said Yoshiko Takayasu, manager of foreign exchange sales at Royal Bank of Canada in Tokyo.
"Given this, the euro is unlikely to have a firm footing above $1.4500," she said.
Yuji Saito, director at Credit Agricole in Tokyo, said the bailout was "far from a fundamental solution."
"There is doubt over whether the bailout is large enough to cover other countries when contagion spreads," he said.
The dollar firmed against the yen in Asian trading despite worries over the showdown between the White House and congressional Republicans over raising the U.S. debt ceiling, as buying from importers and concerns over possible yen-selling intervention lifted the greenback higher.
As of 0445 GMT, the dollar was at Y78.62 from Y78.31 late Thursday in New York.
Still, "exporters appear to have gradually lowered their orders from Y82 to around Y80.50, and then to around Y79," said RBC's Takayasu. This, coupled with U.S. debt ceiling concerns, "is putting a cap" on a rebound in the dollar, she added.
The U.K. pound was at $1.6303 from $1.6315. The dollar was at CHF0.8177 from CHF0.8150. The ICE Dollar Index, which tracks the U.S. dollar against a basket of currencies, was at 74.114 from 73.910.
Interbank Foreign Exchange Rates At 00:50 EDT / 0450 GMT
