Bloomberg News

Euro Maintains Gain on Greek Debt Roll-Over Plan; Dollar Slips

June 27, 2011

June 28 (Bloomberg) -- The euro maintained yesterday’s gain against the dollar on optimism Greece’s creditors will agree to roll over the nation’s debt to forestall the currency union’s first default.

The 17-nation euro advanced against 11 of its 16 most- traded counterparts after Germany welcomed proposals from French lenders on voluntary participation in the debt plan. Greek lawmakers tomorrow will vote on budget cuts and asset sales needed to secure a loan payment and future financing. The dollar dropped against most of its major peers before data forecast to show home prices in 20 U.S. cities dropped in April.

“The initial reaction is fairly positive” for the euro, said Grant Turley, a senior currency strategist at Australia & New Zealand Banking Group Ltd. in Sydney. “French banks are arguably the largest private sector holders of Greece debt.”

The euro was at $1.4297 at 10:15 a.m. in Tokyo from $1.4287 in New York yesterday after earlier rising as much as 0.3 percent. The common currency traded at 115.47 yen from 115.58 yen, following yesterday’s 1.3 percent gain. It touched 89.58 British pence, the strongest since June 8, before trading at 89.46 from 89.35 yesterday.

The dollar fetched 80.76 yen from 80.89. It reached 80.98 yen yesterday, the highest level since June 16.

Greek Prime Minister George Papandreou called on lawmakers to obey their “patriotic conscience” and back tougher austerity measures, as they began to debate a five-year budget plan yesterday. Failure to pass Papandreou’s proposed 78 billion euros ($111 billion) of cuts and asset sales may lead to the euro area’s first sovereign default.

French Proposal

France proposed a target of rolling over 70 percent of Greece’s debt after talks last week with banks. Half the Greek debt held by banks and insurers maturing in the next three years would be swapped for new 30-year bonds. The redemptions from another 20 percent would be invested in a special purpose vehicle that would serve as collateral for the banks, two people familiar with the plan said.

German Finance Ministry spokesman Martin Kreienbaum said in Berlin his government welcomes proposals from the private sector. German and French lenders are the biggest European holders of Greek debt.

Euro region finance ministers are set to meet on July 3 in Brussels to advance a plan that is supposed to be approved at a follow up meeting on July 11. A deal on the rollovers is needed to get the new aid package passed, a condition for freeing up a 12 billion-euro payment from the original bailout that Greece needs to meet 6.6 billion of bond maturities in August.

‘Band-Aid Measures’

“I think it’s all just band-aid measures at the moment,” said Matthew Brady, executive director for foreign exchange at JPMorgan Chase & Co. in Sydney. “I’m still firmly in the camp that euro will go lower. Europe’s not out of its problems at the moment.”

The S&P/Case-Shiller index of property values in 20 U.S. cities fell 3.95 percent in April from a year ago, according to the median estimate of economists in a Bloomberg News survey before the data today.

The Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners, was slipped 0.1 percent to 75.238 after falling 0.5 percent yesterday.

--Editor: Rocky Swift

To contact the reporters on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net; Kristine Aquino in Singapore at kaquino1@bloomberg.net

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.


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