The euro fell on Friday as Greece’s far-right party leader refused to back a bailout agreement, raising concerns, once again, that Greece could face a disorderly default on its debt.
The trajectory of the euro over the next week will hinge on news about Greece and whether it succeeds in getting its second bailout, with Wednesday’s Eurogroup meeting seen as crucial.
—- Aussie falls, dovish RBA statement weighs The market’s pessimistic tone on Friday starkly contrasted with the previous session in which optimism over a Greek deal lifted the euro to an eight-week high against the dollar.Sharp daily swings in sentiment have largely defined the currency market in recent weeks, causing the euro to trade within a narrow range as the latest headlines dictated direction.
Political parties in Athens on Thursday struck a long-awaited deal on harsh austerity steps necessary for a second rescue package and a debt swap deal with Greece’s private bondholders is thought to be close.But George Karatzaferis, head of the LAOS party, said on Friday he cannot vote for the loan agreement.
Reports of resignations by government ministers in protest against the bailout agreement added to concerns.
Karatzaferis’s comments caused the euro to extend earlier losses after euro zone finance ministers sought further measures from Greece before signing off on the 130 billion euro bailout package.Nevertheless, some strategists believe a Greece deal will ultimately be reached, which should pave the way for euro gains.
“The (performance of) the euro will depend on what happens in Greece next week,” said Charles St.Arnaud, forex strategist at Nomura Securities in New York.
“Our base case is that the new wave of austerity will be approved and that we will get an agreement regarding the PSI (private sector involvement),” he said.
“Based on that we could see EUR/USD higher by the end of the week.”
In New York, the euro was last down 0.9 percent at $1.3164, well below the two-month high on Thursday.Eurogroup Chairman Jean-Claude Juncker said a further 325 million euros of spending cuts needed to be found and, with Greek elections looming, political assurances were needed that the plan would be implemented.
The Eurogroup includes the finance ministers of the countries in the euro zone.
“Although the Greek saga continues and risks of default remain, the market is relatively confident that a deal will be made as EUR/USD continues to hover near its year-to-date highs,” said Boris Schlossberg, director of currency research at GFT Forex in Jersey City, New Jersey.The situation, however, remains politically charged and if the Greek parliament balks at approving the austerity measures imposed by its lenders, the euro could move sharply lower, he said.
Greece must do whatever it takes to approve a bailout deal and avoid catastrophe, Greek Prime Minister Lucas Papademos said, adding that cabinet members who disagree have no place in the government.
“Time is clearly running out for any further negotiating manoeuvres as next week appears to be the hard target deadline for a Greek bailout deal,” Schlossberg said.Currency speculators cut their bets in favour of the US dollar in the latest week, according to data from the Commodity Futures Trading Commission released on Friday.
The Australian dollar was pressured by euro zone concerns as well as a dovish quarterly statement from the Reserve Bank of Australia and data showing a slump in Chinese imports.The Aussie was last down 1.1 percent to $1.0662, after falling to its lowest in more than a week and well below a six-month high reached this week.
Against the yen, the euro was down around 1 percent on the day at 102.18 yen, off a two-month high hit on Thursday.The dollar rose to its highest against the yen in two weeks before surrendering gains.
It was last at 77.58 yen, down 0.1 percent.
Still, Japanese Finance Minister Jun Azumi said the exchange rate remained out of sync with economic reality and repeated he was ready to counter excessive speculation.
