Rising risk appetite lifts euro, gains seen limited

By Wanfeng Zhou

NEW YORK (Reuters) – The euro rose for a second day against the U.S. dollar Tuesday, buoyed by an increase in risk appetite, though gains could be fleeting on nagging worries over Greece’s debt crisis.

Encouraging Chinese and U.S. economic data lifted stocks, oil and other growth-oriented markets. That also boosted gains in higher-yielding, commodity-linked currencies such as the Australian and New Zealand dollars.

Traders remained cautious the single currency remained a sell on rallies, owing to Greece’s debt crisis and uncertainty over how much the private sector will be involved in a new financial aid package for Athens.

“The temporary calming in market conditions is the key driver in FX moves,” said Nick Bennenbroek, head of currency strategy at Wells Fargo in New York.

“The European debt crisis hasn’t exactly disappeared as a market issue, but with no new significant headlines, it is having a lesser impact on the euro for today at least.”

The euro hit a session high of $1.4498 on electronic trading platform EBS, before easing back to $1.4479, up 0.4 percent for the day.

Technical traders said the break back above the 55-day moving average at $1.44062 was a positive sign, suggesting the euro could run a bit further in the very short term. Resistance is seen around $1.4520, the high in mid-April.

Euro zone finance ministers meet to discuss Tuesday how private Greek bondholders should be involved in a second financing package for the debt-laden country ahead of a self-imposed June 20 deadline for a deal. No decisions are expected Tuesday.

Debt issued by peripheral economies were under broad pressure as Greek, Portuguese and Irish 10-year bond yields hit fresh euro lifetime highs. Traders expect yields to rise further, at least until details of a new bailout package for Greece are agreed.

European policymakers struggled to sort out their differences over Greece with the stand-off between German officials and the European Central Bank over the prospect of a ”voluntary” debt rollover threatening a resolution.

On Monday, Standard & Poor’s slashed Greece’s credit rating to CCC, making the country its lowest rated in the world.

“The euro remains a sell on rallies as there is still a very high risk of growth momentum slowing down. Also, problems in the periphery should not be underestimated as Germany will stick to its stance on Greece and there is a risk of technical default,” said Manuel Oliveri, currency analyst at UBS in Zurich.

The Australian dollarwas up 0.9 percent at $1.0697. The Canadian dollar also rallied, with the greenback falling 0.8 percent to C$0.9681.

China’s inflation accelerated in May to its fastest level in almost three years, and its industrial output grew a solid 13 percent from a year ago.

While the data showed inflation at multiyear highs, it did not stoke fears that it is running beyond the control of policy makers, as its central bank later increased the reserve requirement ratio for commercial lenders by 50 basis points.

Against the yen, the dollar rose 0.4 percent to 80.51 , helped by a rise in U.S. Treasury yields. It climbed to a session peak of 80.63 yen on Reuters data after a report showed U.S. retail sales fell less than expected in May. (Additional reporting by Nick Olivari; Editing by Diane Craft)