NEW YORK: The euro rose against the dollar on Tuesday, though it stayed within its recent range, after a Greek official said the government is drafting an agreement on a bailout deal that will be put before political leaders for approval later in the day.
The official's statement suggested that the Greek government has completed negotiations with lenders on the 130 billion-euro rescue package, although agreeing to the painful austerity measures that come with the bailout could be a challenge.
Greek political leaders had balked at the austerity plan required to get the rescue funds.
"The Greek news removes a hurdle for Greece in the short term and eases the the massive credit risk and that's positive for the euro," said Boris Schlossberg, director for currency research at GFT in Jersey City.
For Greece, failure to secure the 130 billion euro ($170 billion) rescue would mean it faces a messy debt default and destabilise the entire euro zone.
However, if Greece does reach a deal, the euro could receive a short-term boost. Any positive reaction for the euro would be fleeting though as investors would stay bearish over worries that Portugal may require another bailout and concerns the euro zone will slip into recession.
Citi's chief economist Willem Buiter raised the estimate of the likelihood of Greece exiting the euro to 50 percent over the next 18 months, from 25-20 percent previously.
He argued Greece's failure to meet conditionality targets and a steady drop in the willingness of the creditors to pump in more funds meant the prospects of an exit had increased.
In early New York trading, the euro was up 0.4 percent at $1.31790, hitting session highs of $1.31950 on trading platform EBS in the wake of the Greek news. The day's high was within striking distance of the six-week peak around $1.32350 hit at the end of January.
Chartists said support for the euro was seen at its Jan. 25 low of $1.2931 and then to $1.2857, a 61.8 percent retracement of its January rise.
The one-month 25-delta euro/dollar risk-reversal showed a widening premium for euro puts, showing increasing demand to hedge against a fall in the euro.
SWISS REAFFIRM PEG
The euro rose against the Swiss franc to 1.20906 francs . It earlier slid versus the franc after the Swiss National Bank's interim chief Thomas Jordan said the central bank was ready to buy unlimited quantities of foreign currency to defend its 1.20 franc cap and will take additional steps if warranted.
The euro/Swiss franc dipped to around 1.2072 francs from around 1.2082 francs beforehand. Earlier the euro had inched up on market talk before the speech that the SNB could signal its intention to raise the peg.
Against the yen, the dollar gained 0.3 percent to 76.77 yen, up from 76.14 reached after upbeat US jobs data last Friday.
The dollar was well bid after Japanese Finance Minister Jun Azumi said the country followed up its record yen-selling intervention last year with covert operations and that it is ready to step in again to counter speculative moves.
Meanwhile, the Aussie dollar held on to much of the gains made after the Reserve Bank of Australia kept interest rates steady, surprising most investors who had wagered on a cut.
The Aussie hit a six-month high of $1.0823 against the dollar before dropping back to $1.0796, up 0.6 percent on the day.
"The (RBA) policy statement was dovish with policy makers leaving themselves plenty of room if 'demand conditions weaken materially from, presumably, an external shock, suggesting that any further easing in policy would likely require an external shock," said Brown Brothers Harriman in a research note.
"In that case, a non-threatening inflation outlook gives them leeway to ease policy," the bank added.
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