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Currency markets reflected a more benign acceptance of the political turbulence in Greece on Wednesday, lifting the euro and other risk assets which were sold off during the previous session.
The euro reclaimed 0.6 per cent to $1.3778 against the dollar, having dropped 1.2 per cent on Tuesday when George Papandreou, prime minister of Greece, called a referendum on acceptance of its bail-out terms.
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While France and Germany’s leaders prepared for a meeting with the Greek PM in Cannes later, Mr Papandreou, at an overnight cabinet meeting, secured approval to hold the referendum. He first has to survive a confidence vote in parliament on Friday, however, and some analysts suggested it was speculation that he will lose this poll that appeared to be driving the uptick in risk sentiment on Wednesday.
“The referendum will be called off if a new government takes over,” said Hans Redeker at Morgan Stanley.
“Indeed, the chance of the Greek government staying in office is rather thin, and the market will price in that low probability. Hence, the euro and other risky assets should rebound.”
Sterling climbed 0.4 per cent to $1.6013 against the dollar, while the Australian dollar, which fell sharply on Tuesday in response to its central bank cutting interest rates, edged 0.3 per cent higher to $1.0363.
Against the yen, however, gains were harder won, with sterling up 0.1 per cent to Y124.91, while the euro added 0.1 per cent to Y107.42.
Dollar-selling was broad-based and the US currency gave back some of the ground lost against the yen following the massive intervention by Japanese authorities to weaken their currency on Monday.
Speculation that the Federal Reserve may adopt a third round of quantitative easing at its policy meeting later kept the dollar subdued. The US currency fell 0.3 per cent to Y78.05 versus the yen, while the dollar index, a measure of the US unit’s strength against a basket of rival currencies, fell 0.3 per cent to 77.046.
