Euro gains on positive Greek vote

The euro rose against the dollar yesterday as Greek lawmakers gave preliminary approval to an austerity package needed to keep the country from defaulting and the eurozone debt crisis contained.

In late London deals, the European single currency rose to $1.4430 from $1.4367 late in New York on Tuesday. The dollar slipped to 80.84 yen from 81.08 yen.

“The fact that the Greek Parliament has passed the government’s medium-term fiscal plan clearly reduces the chances of a near-term disaster,” said Capital Economics analyst Ben May. Lawmakers approved the programme worth €28.4 billion ($40 billion) in spending cuts and tax hikes by the end of 2015 in a vote of 155 to 138 as protestors battled police outside Parliament.

A second vote on measures to implement the package is to be held today. Prime Minister George Papandreou said a ‘Yes’ vote was “the only way to buy time and start the great changes this country needs.”

The votes have been eagerly awaited by other debt-ridden eurozone countries who fear rejection would trigger dangerous knock-on effects.

Optimism that Greece would pass the tough measures sent the euro to a two-week high at $1.4448 ahead of the vote. CMC Markets analyst Michael Hewson called it “a classic case of ‘buy the rumour sell the fact’” as the euro slipped back once Greek lawmakers voted to approve the measures.

The new measures were drawn up to meet European Union and International Monetary Fund (IMF) conditions for further bailout support, after a €110-billion-rescue last year.

If passed, these creditors could – as early as Sunday – authorise €12 billion in blocked funds needed to stave off default for Athens when massive debt repayments fall due in mid-July.

It would also allow talks to move forward on a second bailout, probably also worth around €110 billion that would ensure Greece has adequate external support for three years.

“Temporary resolution of the Greek debt repayment problem should settle down global financial markets for at least a few weeks,” said Frederic Dickson, chief market strategist at D.A. Davidson & Co.

“The bad news is that Greece will remain a problem child for the EU as the country’s economy remains in a deep recession and Greek government debt stands at around 150 per cent of GDP,” he added.

Most in the markets expect Athens will be unable to repay its nearly €350-billion-euro debt, with the latest rescue efforts only serving to postpone and lessen the impact of a Greek default on the eurozone and the global financial system.

In London late yesterday, the euro changed hands at $1.4430 against $1.4367 late in New York on Tuesday, at 116.66 yen (116.51), £0.8984 (0.8980) and 1.2052 Swiss francs (1.1955).

The dollar stood at 80.84 yen (81.08 yen) and 0.8350 Swiss francs (0.8319).

The pound was at $1.6061 (1.5997).On the London Bullion Market, gold rose to $1,504.25 an ounce from $1,499 late on Tuesday.