Dollar rallies as Greek deal brings US rate hikes into focus

LONDON: The dollar strengthened across the board on Monday after euro zone leaders clinched a deal with Greece in an all-night summit, letting investors turn their focus away from Europe and towards the prospect of higher US interest rates.

European Council President Donald Tusk announced on Twitter that leaders had unanimously reached agreement on a third bailout for the cash-strapped southern European country.

EU officials said Greek Prime Minister Alexis Tsipras had accepted a compromise on German-led demands for the sequestration of Greek state assets to be sold off to pay down debt. The precise terms of the agreement were not immediately known.

The single currency, which had initially risen on the news, reversed its gains to trade down 0.9 percent on the day at $1.1060.

"Even though on the face of it it's positive for the euro, it represents a removal of a potential restraint on Fed tightening plans, so there is a dollar positive aspect to it," said Ian Gunner, portfolio manager of the Altana Hard Currency Fund in London.

"The big twin uncertainties over the past few months have been Greece and Fed tightening, and we may have arrived at a point where the Greek thing is just gone and everyone is just left to concentrate on Fed tightening."

The dollar gained broadly, hitting an 11-day high against the yen, which investors tend to buy at times of uncertainty, at 123.44 yen.

"It's a little bit later than expected but we are where we thought we'd be this morning, with Greece looking reasonably secure within the euro zone," said RBC Capital Markets' head of global FX strategy Adam Cole in London.

"There are still big unresolved issues that will come back to the fore at some point in the future but for now I think now we move on to start thinking about the outlook for US interest rates, with Yellen's testimony and US data coming to the fore as the main driver for euro/dollar."

Federal Reserve Chair Janet Yellen will give a semi-annual testimony to US Congress later in the week, which will be closely watched for clues on when interest rates might start to increase. Last Friday, Yellen said she expected the Fed to raise interest rates at some point this year.

Boston Fed President Eric Rosengren, one of the Fed's most dovish officials, said September may be the right time to hike rates if the US economy continued to improve.