Monday, Jun 27, 2011
-Proposed rollover of Greek debt helps lift euro
-Investors bullish on upcoming Greece austerity vote
-Dollar support constrained by U.S. debt-ceiling issue
By Andrew J. Johnson
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--Investors' optimism about the prospect of a broad plan with European Union guarantees to roll over Greek debt that could involve private creditors and diminish the chance of default helped boost the euro Monday.
European governments have said they want private creditors to roll over as much as EUR30 billion worth of Greek government bonds that come due by 2014. The proposal drafted by French banks and insurers calls for half of the proceeds from maturing Greek bonds to be reinvested in 30-year Greek bonds. Furthering the credibility of that plan, the European Central Bank said it is receptive to the French proposal on Greece, if it is voluntary.
Hopes that an austerity plan could pass in the Greek Parliament later this week also gave the currency support.
"There is optimism on Greece" at the start of this new week, said Kathy Lien, director of currency research at GFT Forex in New York. There is a broad sense that most parties in the euro zone, and inside Greece itself, know what is at stake and won't let Greece fail.
"Euro bears were covering today on optimism that [the likely passage of the austerity plan] is going to be positive for the euro," said Phil Streible, senior market strategist at Lind-Waldock in Chicago. The thinking now is that the euro could next head to $1.4300-$1.4325, he predicted.
But the euro will then be susceptible as that good news wanes and more troubles present themselves, said Streible. To that end, "I was selling $1.48 August calls today and putting in orders for $1.40 September puts," for the euro, he said.
Late Monday, the euro was at $1.4283 from $1.4186 late Friday, according to EBS via CQG. The dollar was at Y80.89 from Y80.41, while the euro was at Y115.53 from Y114.10. The U.K. pound was at $1.5988 from $1.5967. The dollar was at CHF0.8355 from CHF0.8336.
The ICE Dollar Index, which tracks the U.S. dollar against a basket of currencies, was at 75.314 from about 75.665.
The euro has held up above $1.4000 recently despite persistent worry that Greece will default on or have to restructure its debt. But that support is subject to a sudden reversal depending on what happens this week, said analysts.
Greece's Parliament is due to vote Wednesday on the austerity package, followed by a vote Thursday on implementing the legislation. A positive outcome is essential to the euro still receiving support. That degree of uncertainty makes the euro sensitive to even the slightest of any optimistic or negative reports.
Some market participants said the market's jittery nature made it hard to ascribe definitive reasons to such a large euro gain on the day--with the common currency surging about 1.25% against the yen and 1% against the Swiss franc.
Overall, the euro seemed to be enjoying a mix of relief and anticipation, with investors buying on what they think is likely to happen with respect to Greece, even if they couldn't be sure of all the details.
Separately, the U.S. debt-ceiling issue lurks in the background. The degree of support for the dollar will generally depend on the progress of negotiations among Republicans, Democrats and the Obama administration.
U.S. policy makers have expressed confidence that there will be a deal to raise the country's debt limit by an Aug. 2 deadline despite the move Thursday by top Republican negotiators to pull out of talks Vice President Joe Biden is organizing.
"The early call on this [issue] is that Republicans will give on defense spending and the president [who has joined the talks] will give some on Medicare," and a dollar-supportive deal is likely, said Andrew Busch, global foreign exchange strategist at BMO Capital Markets in Chicago.
-By Andrew J. Johnson, Dow Jones Newswires; 212-416-3092; andrewj.johnson@dowjones.com
(END) Dow Jones Newswires
June 27, 2011 17:01 ET (21:01 GMT)
