The euro fell back on Tuesday, as traders who had bought the single currency on hopes a Greek debt deal was almost sealed eyed a range of still-formidable political barriers to an agreement this week.
A move above $1.14 late in European time on Monday followed a series of headlines indicating an agreement can be reached later this week that would prop Athens up for another period and keep the euro zone’s weakest member in the club.
Against that, however, was a powerful surge in the dollar following a 5-percent rise in U.S. housing sales that returned markets to a more fundamental driver: the prospect of higher U.S. interest rates.
That left many of those who bought the euro in expectations of more gains as the Greek deal firms up scrambling to close out their positions, and the euro sank as much as 1 percent in response on Tuesday.
“If you bought the euro on those headlines last night, you come in this morning and realize it has fallen and there are still a lot of problems in the details,” said Adam Myers, senior FX strategist with Credit Agricole in London.
“Basically we think the euro will fall today. People are worried this will not get through the Greek parliament. A lot will also depend on the scale of outflows from the banks.”
Euro zone leaders agreed late last night that the institutions representing Greece’s creditors should try to wrap up a detailed agreement by Wednesday evening for their finance ministers to approve and present to them on Thursday.
That leaves barely 48 hours to scrutinize the complex plan, make sure the numbers add up, agree on a list of “prior actions” to turn the promises into laws quickly, find a legal way of extending the Greek bailout and get Athens the money it needs to pay the IMF 1.6 billion euros ($1.8 billion) next week.
Analysts pointed to previous evidence of Greek Prime Minister Alexis Tsipras’ weakness in the face of resistance from political allies at home.
However with the euro up 7 percent against the dollar in the past two months, SG strategist Kit Juckes has been among a number arguing strongly that the whole Greek affair has had little real effect on currency markets.
“I’m not sure how much the Greek talks have to do with the way the market trades unless they fail, in which case the underlying belief that there will be a last-minute deal will be shattered and risk aversion will be the order of the day,” he said.
“But assuming we do indeed get the last-minute deal everyone expects, then we will simply move on to wondering whether it can be ratified by individual parliaments and then, how long it will last before we need another one.
By 0729 GMT, the common currency was trading 0.6 percent lower on the day at $1.1268 EUR=. The dollar was up 0.4 percent against a basket of currencies .DXY and 0.2 percent at 123.57 yen JPY=, extending Monday’s half percent gain against the yen.
There was no support for commodity-driven currencies like the Australian and New Zealand dollar from still lukewarm Chinese manufacturing numbers, the kiwi sliding to a five-year low of $0.6845 NZD=D4 before steadying.
Source: Reuters
