Euro hit by Greek uncertatiny; dollar up vs yen

NEW YORK - Confusion about the timing and amount of emergency aid for Greece prompted investors to sell the euro on Monday as markets worried about whether the euro zone country will manage to avert a debt default.

By (Reuters)

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Published: Mon 26 Apr 2010, 8:12 PM

Last updated: Mon 6 Apr 2015, 1:54 PM

The euro briefly dipped below $1.33, falling against the greenback for the seventh trading session in the last eight. It also hit a three-month low against sterling as markets worried about the potential conditions attached to a loan to Greece.

The dollar also rose against the yen, breaking further above 94 yen, as investors bet the Federal Reserve would raise interest rates before year end, well ahead of any move by the Bank of Japan.

Greece requested emergency aid on Friday and tried to reassure investors over the weekend that the 45 billion euros ($60.5 billion) from the European Union and IMF would arrive in time to avert the euro zone’s first sovereign default.

But while Germany’s finance minister said the country intends to free up funding before May 19, when Greece faces a debt deadline, opposition lawmakers said they would not back an accelerated parliamentary process.

The confusion added to upward pressure on Greek borrowing costs, with two-year government debt rising above 12 percent and the gap between 10-year Greek and German bonds swelling to 679 basis points, the highest since use of the euro began.

“It’s not just about Greece but also what Greece means for the rest of Europe. There’s clearly a lack of credibility with the package. It’s not clear whether this is going to solve the liquidity issue for Greece,” said Michael Hart, currency strategist at Citigroup.

The euro fell 0.4 percent to $1.3333 after earlier hitting a session low of $1.3291 . It was little changed at 125.69 yen but fell 0.9 percent to 86.21 pence, near a three-month low of 86.06 pence touched earlier.

“Aid for Greece still doesn’t seem like a completed deal, so all the uncertainty about the timing and details of a Greek plan limits demand for euro,” said Michael Malpede, analyst at Easy Forex in Chicago.

Sterling also rose 0.6 percent to $1.5471 as polls showing slightly higher Conservative Party support ahead of next week’s election reduced the chances of a hung Parliament.

The dollar edged up 0.2 percent to 94.24 yen but slipped 0.1 percent to 0.9991 Canadian dollars .

The Fed is expected to sound an upbeat note about the economy when it meets this week, setting the stage for a rate hike later this year, while investors expect the Bank of Canada to hike rates as soon as June.

But worries about sovereign default tempered overall enthusiasm. The euro has lost nearly 7 percent against the dollar this year, and the Commodity and Futures Trading Commission said Friday that speculators increased bets on further euro losses in latest week. ⅛ID:nN23568287⅜

Some investors worry that Greece’s debt trouble may be a harbinger of trouble in other peripheral euro zone countries, including Portugal, which saw yields on two-year government bonds widen by nearly 100 basis points on Monday.

“The rising cost of financing, the uncertainty, fears of contagion from Greece to other countries — none of that has been resolved yet, and that makes people nervous,” Malpede said.

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