Euro helped by risk appetite but debt woes remain

NEW YORK: The euro and high-yielding currencies rose on Tuesday, boosted by improved risk appetite after Chinese data eased global growth concerns.

Traders however, remained cautious the single currency remained a sell on rallies, owing to Greece's debt crisis and uncertainty over how much the private sector will be involved in a new financial aid package for Athens.

The dollar gained against the yen and pared losses against most other currencies on Tuesday after a big jump in US inflation data and a less-than-expected drop in US retail sales but that momentum eased as the London session began to wind down.

"No new news on the European debt problem and Chinese data allayed somewhat that a slowdown in China would drag down the global economy," said Joseph Trevisani, chief market analyst at FX Solutions in Saddle River, New Jersey. "Better than expected retails sales in the US squeezed out most of the weak euro shorts on a reversion to risk appetite."

The high-yielding Aussie was up 0.8 percent at $1.0688 after a report showed Chinese inflation surged to its highest in 34 months. A rise in Chinese industrial output for May at 13.3 percent, just north of expectations, also helped risk appetite.

But China also raised banks' reserve requirements by 50 basis points, which capped some of those gains.

GREECE

The euro hit a session high of $1.4487 on the EBS trading platform before easing back to $1.44715, up 0.4 percent for the day.

Technical traders said the break back above the 55-day moving average at $1.44057 was a positive sign, while the next resistance was at $1.4508, the 50-percent retracement of this month's sell-off.

The euro managed to climb as euro zone finance ministers meet to discuss on Tuesday how private Greek bondholders should be involved in a second financing package for debt-laden Greece ahead of a self-imposed June 20 deadline for a deal. No decisions are expected on Tuesday.

European policymakers struggled to sort out their differences over Greece with the stand-off between German officials and the European Central Bank over the prospect of a "voluntary" debt rollover threatening a resolution.

On Monday, Standard & Poor's slashed Greece's credit rating to CCC, making the country its lowest rated in the world.

"The euro remains a sell on rallies as there is still a very high risk of growth momentum slowing down. Also, problems in the periphery should not be underestimated as Germany will stick to its stance on Greece and there is a risk of technical default," said Manuel Oliveri, currency analyst at UBS in Zurich.

Yields for Greek, Irish and Portuguese 10-year government bonds hit fresh euro lifetime highs on Tuesday as uncertainty over Greece spooked investors.

US DATA

The dollar rose 0.3 percent to 80.48 yen after climbing to a session peak after the US data of 80.63 yen, according to Reuters data. The session low posted at 80.07 yen.

US retail sales in May fell for the first time in 11 months, dragged down by a sharp drop in receipts from auto dealerships, though the decline was less than expected.

The inflation data showed the largest year-over-year rise in US producer prices since 2008, which pushed up US Treasury yields and gave some bid to the dollar.

The year-over-year US producer price inflation figure was well above expectations, said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington. "The balance of data was decent, yields went up and the dollar followed against the yen."

Copyright Reuters, 2011