FOREX-Euro zone debt deal hopes push euro higher

Thu Feb 16, 2012 12:41pm EST

Related Topics

* Greek debt swap deal could be done in days
    * U.S. jobless claims, housing starts beat expectations
    * Dollar hits highest vs yen since October

    By Luciana Lopez	
    NEW YORK, Feb 16 (Reuters) - The euro reversed losses
to rise against the U.S. dollar on Thursday, as hopes that a
Greek bond swap deal could be within reach boosted global
investor sentiment as well as the appeal of higher-risk assets.	
    The single currency traded as high as $1.3120 against the
dollar, after having spent almost all of Thursday's session in
the red. That was well past the psychological support level at
$1.30, also a reported options barrier. 	
    The euro last traded up 0.28 percent at $1.3107.	
    "We're getting reports that the ECB (European Central Bank)
is moving forward with its (Greek) bond swap, so the possibility
of some concrete progress is reinvigorating risk appetite and
pushing up the euro," said Kathy Lien, director of research at
GFT Forex in Jersey City. "We're finally walking in the right
direction."	
    If a deal for a Greek debt swap is completed by Monday and
followed by details about a second bailout, she said, the euro
could push back above $1.33, but buying in the interim will be
"cautious."	
    "Investors have been short-changed too many times not to be
careful," Lien added.	
    The national central banks within the euro zone are set to
exchange their holdings of Greek bonds into new bonds in the run
up to a private sector debt deal to avoid taking any forced
losses, euro zone sources said on Thursday, with the swap to
happen over the weekend. 	
    The euro advanced against the yen, as well, trading as high
as 103.35 yen. 	
    "The market is reacting to rumor that a Greek bond swap is
in the works and a higher likelihood that a deal will be reached
in the near term," said BNY Mellon currency strategist Michael
Woolfolk. "This is not a euro move, it is a risk-on move."	
    Meanwhile, stronger-than-expected U.S. economic data had
already improved sentiment in the early hours of the New York
session, helping the dollar hit a three-and-a-half-month high
against the yen.	
    Data suggested the U.S. labor and housing markets were
gaining momentum, with new jobless claims falling to a near
four-year low last week and January housing starts beating
expectations.  	
    The dollar traded as high as 78.94 yen, its strongest 
against the yen since Oct. 31, when Japan unilaterally stepped
into foreign exchange markets to weaken the currency. 	
    The greenback last traded up 0.7 percent at 78.88 yen.	
    The dollar broke above reported stop-loss orders above 78.80
yen, although traders said option-related offers ahead of 79 yen
may cap gains.	
    The dollar's prospects against the yen were boosted after it
broke above the 200-day moving average this week. But some
analysts said that until U.S two-year yields move higher, the
greenback was likely to stay under 80 yen.	
    News of the possible euro zone bond swap relieved pressure
on the euro after euro zone finance ministers failed on
Wednesday to agree on a new bailout package for Athens, delaying
a decision until Monday. 	
    Markets are still expecting Greece to avoid a disorderly
default, said Ronald Simpson, managing director of global
currency analysis at Action Economics in Tampa, Florida. 	
    "The market is being pretty sanguine in its belief that
everything is going to be fine with Greece and Portugal and
Spain," he said. 	
    The options market showed investors were increasingly
looking to buy protection against further euro losses.	
    "The market is probably pricing in a better-than-even
probability that a near-term deal will be reached on Greece and
avoid a messy default, which suggests there are more risks to
the downside for the euro if there is no deal on Monday," said
Adam Cole, global head of currency strategy at RBC.	
     Greece is scrambling to clinch the 130 billion euro ($170
billion) bailout at the Monday meeting of euro zone finance
ministers to avert a chaotic default when 14.5 billion euros in
debt repayments fall due on March 20.
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