Greek aid hopes boost euro against dollar

By Steven C. Johnson

NEW YORK (BestGrowthStock) – The euro rose on Friday after an EU source said euro zone leaders had agreed to terms of a possible emergency loan aimed at helping Greece manage a worsening debt crisis.

The news allowed traders to shrug off a downgrade by Fitch of Greece’s credit rating by two notches, to one grade above junk status.

Fitch Ratings cited Athens’ fiscal challenges and uncertainty about how a European Union-International Monetary Fund aid program agreed last month would be applied.

The clarity on a rescue plan for Greece that emerged on Friday helped spark a rally that lifted the currency to just shy of $1.35, its highest since Monday. But traders said the longer-term outlook for the euro remained negative.

“The Europeans are cognizant of the fact that they can’t ignore Greece, that it’s not an itch that will go away if you don’t scratch it,” said Firas Askari, head of FX trading at BMO Capital Markets in Toronto.

“But the reality is that any solution is probably a poor one, and by inviting the IMF to the party, one has to wonder what the purpose of the European Union is,” he added. “So I think any rally in the euro is probably short-lived.”

The euro rose 1 percent to $1.3490, well off a $1.3341 session trough. It gained 0.6 percent to 125.58 yen. The dollar slipped 0.2 percent to 93.19 yen.

Sterling rose to a six-week high near $1.54 and was last up 0.7 percent to $1.5376 while the Canadian dollar dipped to C$1.0040 per U.S. dollar after Canada reported that fewer jobs were added in March than economists had expected.

Investors continued to watch China’s yuan after The New York Times reported this week that the government was close to announcing a shift in its currency policy.

EURO FACES UPHILL CLIMB

Investors in recent months have steadily sold Greek assets, a trend that began when the country revealed last year that its 2009 budget deficit was twice as high as markets thought.

Greece’s borrowing costs have risen amid doubts about whether the euro zone country can remain solvent.

The euro is still down almost 6 percent versus the dollar so far this year and earlier this week it fell below $1.33, near its lowest level in 2010.

Euro zone sources told Reuters on Friday that Greece would likely have to pay more than 6 percent for a three-year emergency loan. Three-year Greek government bonds were yielding 7.1 percent Friday.

“The market had gotten quite negative on the euro and what we’re seeing is a bit of a squeeze of some of those euro shorts,” said Aroop Chatterjee, currency strategist at Barclays Capital in New York.

But he said lack of clarity on a Greek bailout and weak euro zone economic data will continue to hurt the currency.

For now, BMO’s Askari said, “the euro could snap back to $1.37 in a heartbeat, just based on positioning. But in the longer term, I just don’t want to be long the euro.”

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(Additional reporting by Wanfeng Zhou; Editing by Leslie Adler)

Greek aid hopes boost euro against dollar