Euro Bounces Around After Conflicting Reports of Greece Aid

Posted February 10, 2010

The euro rallied and then retreated against the US dollar and yen as conflicting reports of aid availability for Greece were issued. The US dollar rose against the yen and Australian dollar. Fitch ratings calls UK most vulnerable of triple A sovereigns. The Columbian peso advanced against the US dollar as investors ventured into higher risk territory. Canada’s dollar rose against the US dollar.


The euro rallied against the US dollar after a two month period of declines as hope for help for Greece’s debt problem appears. The Germans have led a European Union coalition that is addressing the growing budget deficits in the region. Germany has been largely silent on the subject as an agreement is hammered out, but yesterday a spokesman indicated there would be help for Greece.

The euro rose to $1.3782 against the US dollar.

But in a sign of the times, a German government denied that the Euro-Zone had agreed to give Greece aid and the euro retreated to $1.3765.  These moves up and down indicate confusion on the part of the market as to whether aid is assured for Greece.

The European Commission has made it known that it does not want aid coming from the EU out of fear of contagion effects. In other words, if the EU comes to the aid of Greece then Spain and Portugal would probably not be far behind. The European Union leaders meet again on Thursday this week to continue looking for a solution to Greece’s debt issues.

The euro fell against the yen to 123.58 yen.

One factor that is a complete mystery to the investor right now is what conditions will be placed on any aid to Greece and whether Greece can meet those conditions.  Greece has not shown much discipline when it comes to instituting much needed Greece's budget deficit  reducing policies. Germany has said that German approval for aid will only come under “strict conditions and if the Greek government undertakes far reaching state reforms.” Those are the words of German financial affairs spokesman, Michael Meister.

The US dollar advanced against the Japanese yen to 89.83 yen.

The US Federal Reserve has developed a policy for ending the low interest rates. The US is preparing for exit from stimulus measures in an orderly fashion.  Ben Bernanke will be releasing a written report having been unable to appear before the House Financial Services Committee due to a winter storm preventing movement in Washington D.C.
The Australian dollar followed the same bounce as the euro. It rose by 1.5 percent during the day Tuesday New York time and then retreated to 87.65 US cents per Aussie.

The UK pound weakened against the dollar initially after Fitch ratings indicated the UK was the most vulnerable among the triple A sovereigns. But sterling rallied also in view of a possible Greece bailout and reached $1.5704.

The UK economic recovery is slow and January retail sales fell at their slowest rate in 15 years. Retail sales rose by 1.2 percent January on January. The UK government paused the bond purchase program in a wait-and-see approach. The government is prepared to resume the policy of quantitative easing if the recovery shows signs of falling too severely.

The Columbian peso advanced against the US dollar to 1,966.65 pesos. As the economic recovery chugs ahead slowly but surely around the world investors are assuming some additional risk in the way of emerging market assets.

The Chile peso also rose to 540.55 pesos per US dollar.

The Canadian dollar rose against the US dollar to C$1.0677. The improving global economic picture including possible aid to Greece led to renewed interest in commodity based currencies.