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FOREX-Euro rallies vs weak U.S. dollar
May 27, 2011 / 2:08 PM / in 7 years

FOREX-Euro rallies vs weak U.S. dollar

* ECB’s Provopoulos: Greece can repay debt in full

* Weak run of data undermines U.S. dollar

* Analysts see more CHF gains on strong Swiss economy (Recasts, updates prices, adds quote, U.S. data, changes byline, dateline; previous LONDON)

By Gertrude Chavez-Dreyfuss

NEW YORK, May 27 (Reuters) - The euro took off against the dollar on Friday, helped by comments out of Europe suggesting Greece should be able to handle its heavy debt load and possibly underpinning the single currency next week.

But the euro hit a record low versus the Swiss franc, as did the dollar, indicating investors remained worried that fiscal pressures in Europe, a divisive budget debate in Washington and low U.S. interest rates would hamper both currencies.

The euro rally versus the dollar gained momentum in the New York session after European Central Bank Governing Council member George Provopoulos said Greece will be able to repay its debt in full without restructuring if it sticks to an austerity plan. For details, see [ID:nFAT007211]

His comments were followed by remarks from French President Nicolas Sarkozy, who said France would defend and support the euro. He also said the country opposed any kind of debt restructuring for Greece. [ID:nP6E7GA026]

“Those comments reduce the near-term risk of Greek default and eased the pressure on the euro,” said Joe Manimbo, currency strategist at Travelex Global Business Payments in Washington.

In early New York action, the euro EUR= rose 0.7 percent to $1.4243, but was still off $1.4298, a one-week high hit in earlier trade. Offers from Asian sovereign names in the $1.4280 level were seen capping the single currency's upside.

Above that, traders said the the euro’s resistance is around $1.4339 -- the 38.2 percent retracement of its decline this month.

The euro was also helped by a broadly weaker dollar amid a run of softer U.S. economic data in the last few days. On Friday, the government said U.S. consumer spending rose 0.4 percent in April, lower than expectations of a 0.5 percent increase. [ID:nN271881]

On Thursday, a report showed an unexpected rise in U.S. initial jobless claims, while an estimate on first-quarter gross domestic product came in below most forecasts.

“Softer U.S. data may renew the debate about the introduction of a third round of quantitative easing, and that’s a negative for the dollar,” said Camilla Sutton, chief currency strategist at Scotia Capital in Toronto.

The ICE Futures’ dollar index .DXY, measured against six major currencies, fell 0.5 percent to 75.148.

Overall, the combination of negative dollar sentiment and concerns about heavy euro zone debt is expected to keep the euro in a range above $1.4000 but below last Friday’s high around $1.4345.

The Swiss franc, which again hit a record high versus the euro, was seen continuing its climb as Switzerland’s economic and fiscal health far outshines that of the overall euro zone.

The euro fell 0.3 percent against the franc to 1.2206 EURCHF=.

Analysts said the franc was boosted by a strong reading of the KOF economic indicator for May and the view that Swiss interest rates will rise in the coming months. [ID:nZCHQGE790]

“The Swiss franc has all the right characteristics at the moment: a current account surplus, a strong fiscal balance, and we are getting closer to when relative rates will move in favor of the franc again,” said Kasper Kirkegaard, currency strategist at Danske in Copenhagen.

He added that a fall in the euro below 1.20 francs was imminent.

The dollar hit a three-year low versus the New Zealand dollar NZD=D4, which was last at 0.8171, up 0.8 percent. (Additional reporting by Naomi Tajitsu in London; editing by Jeffrey Benkoe)

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