Euro rebounds as Trichet reassures on Greece

By Steven C. Johnson

NEW YORK (BestGrowthStock) – The euro approached a 2010 low against the dollar on Thursday but rebounded after the head of the European Central Bank assured markets that Greece was in no danger of defaulting on its debt.

The yen, meanwhile, relinquished earlier gains after ECB President Jean-Claude Trichet’s reassurance on Greece eased risk aversion, while a news report fed speculation that China may be gearing up to revalue the yuan.

Earlier, the euro fell (Read more about the trembling euro. ) below $1.33 as investors unloaded Greek assets, driving up Greece’s borrowing costs and raising doubts about whether the euro zone country can remain solvent.

The currency recovered after Trichet said “default is not an issue for Greece” and called a joint European Union-International Monetary Fund aid plan for Greece “workable.”

Later Greek Economy Minister Louka Katseli told state television: “There is no chance, no chance at all, that Greece will default.

Trichet “helped boost demand for the euro,” said Michael Malpede, analyst at Easy Forex in Chicago, adding the ECB chief’s remarks “may have calmed some of the jitters … over the Greek debt situation.”

The euro rose 0.1 percent to $1.3349 after falling to $1.3282, less than half a cent from its 2010 low. It added 0.1 percent to trade at 124.59 yen, while dollar traded flat at 93.35 yen, off a 92.84 session low.

Japan’s currency tends to do well when investors grow risk averse and unwind trades financed with cheaply-borrowed yen.

The cost of protecting Greek government bonds against default and the gap between 10-year Greek and German bonds both hit record highs, but retreated after Trichet spoke.

“The market is unsure of the commitment other European countries and the IMF have to backstopping Greece,” said Sophia Drossos, co-head of global currency strategy at Morgan Stanley. “The uncertainty … is a negative for the euro.”

Sterling showed little reaction to the Bank of England’s decision to keep interest rates unchanged, as expected. It was last up 0.2 percent $1.5267. The ECB also held euro zone rates steady at 1 percent on Thursday.

CHINESE CURRENCY POLICY IN FOCUS

Speculation about a firmer Chinese yuan grew after The New York Times said China was close to announcing a shift in policy involving a “small but immediate” yuan revaluation.

Three-month dollar/yuan offshore non-deliverable forward contracts, or NDFs, hit their lowest level since July 2008.

NDFs allow investors to speculate on yuan moves using previously agreed exchange rates for a future date while avoiding the spot market, which is tightly controlled.

The market was watching for signals on whether China will let the yuan rise as U.S. Treasury Secretary Timothy Geithner and Chinese Vice Premier Wang Qishan exchanged views on U.S.-China economic relations and the global economy during a meeting in Beijing.

Alan Ruskin, chief international strategist at RBS Securities in Greenwich, Connecticut, said speculation for a stronger yuan and the ongoing Greek debt worries may make buying Asian currencies against the euro an attractive trade.

“Even now, longer-term metrics would suggest the euro is far from cheap versus the dollar, while the yuan on a fundamental equilibrium exchange rate basis is extremely cheap versus the dollar,” he said.

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(Editing by James Dalgleish)

Euro rebounds as Trichet reassures on Greece