Bloomberg News

Euro Pares Losses as Greece Reported to Reach Austerity Accord

June 23, 2011

June 23 (Bloomberg) -- The euro pared losses against the dollar after European officials endorsed austerity measures proposed by Greece’s finance minister, increasing optimism the nation’s debt crisis will be resolved.

The shared currency earlier dropped the most in more than a week against the greenback after European Central Bank President Jean-Claude Trichet said the debt crisis threatens to infect banks. The dollar rose against most of its 16 major counterparts after the Federal Reserve signaled yesterday it won’t add to stimulus measures that could erode the value of the currency.

“The issue is whether the Greek parliament will vote for it or not,” said Ray Attrill, a senior currency strategist at BNP Paribas SA in New York. “It tells you that the market got very short euros, and trading the headline is an excuse to cover short positions.” A short position is a bet that a currency will weaken.

The euro declined 0.7 percent to $1.4256 at 5 p.m. in New York, from $1.4357 yesterday. Earlier it fell as much as 1.6 percent, the biggest intraday drop since June 15. The euro dropped 0.4 percent to 114.78 yen, from 115.28. The dollar strengthened 0.3 percent to 80.51 yen, from 80.29. It reached 80.80 yen, the highest level since June 16.

The shared currency earlier dropped to a record versus the Swiss franc, falling as much as 1.7 percent to 1.1846. It traded at 1.1957 francs after the report on Greece, down 0.8 percent.

Endorsed by Officials

Measures proposed by Finance Minister Evangelos Venizelos to complete a 78 billion-euro ($111 billion) austerity package required for Greece to win a bailout were endorsed by officials from the European Union and International Monetary Fund, said a person familiar with the matter.

The program faces a vote in parliament next week, and passage is a condition for receiving a fifth loan under an EU- led bailout and for future financing. Failure to secure aid would push Greece to the brink of default. The country needs the funds to cover 6.6 billion euros of maturing bonds in August.

EU leaders urged Greece to pass the new package of budget cuts and vowed to do what’s needed to meet the country’s financing needs in July, the group said in a statement after the first session of a summit in Brussels. Greek Prime Minister George Papandreou earlier assured them he would deliver cuts, a Greek government official said.

Dollar Gains

The dollar advanced for a second day against the yen after U.S. policy makers said yesterday they’ll keep the Fed’s balance sheet at a record high to spur the economy after the bank ends $600 billion in Treasury purchases on schedule this month. The program is the second round of quantitative easing to stimulate growth. The Fed cut growth forecasts for this year and next.

“The market had gone overboard with expectations for QE3,” said David Mann, regional head of research for the Americas at Standard Chartered Plc. in New York. “It does look like the market had been positioned for the Fed to open the door to QE3.”

Canada’s dollar and Norway’s krone dropped after the IEA said its members will release 60 million barrels of oil from emergency stockpiles to alleviate possible shortages following the loss of Libyan crude.

“We have seen commodity currencies weaken across the board, and this will certainly play into that theme,” said Lena Komileva, head of Group-of-10 strategy at Brown Brothers Harriman & Co. in London. “The Canadian dollar and Norwegian krone are sharply down.”

Canada, Norway

The Canadian currency dropped as much as 0.9 percent to 98.25 cents per U.S. dollar before trading at 97.90, down 0.5 percent. Norway’s krone tumbled 2.1 percent to 5.5535 per dollar before trading at 5.46, down 0.4 percent. Crude oil slumped as much as 6 percent to $89.69 a barrel in New York, the lowest level since Feb. 22.

The British pound slumped below its 200-day moving average for the first time since January as the Confederation of British Industry’s retail gauge fell to minus 2 in June from 18 in May, the weakest in a year. Stores expect demand to be flat in July.

Sterling depreciated 0.4 percent to $1.6006, dropping below $1.60 for the first time since April. It gained 0.3 percent to 89.06 pence per euro.

--Editors: Greg Storey, Dave Liedtka

To contact the reporter on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net


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