Euro gains 4th day vs dollar on Greek speculation

NEW YORK: The euro rose for the fourth straight day against the dollar on Wednesday on cautious optimism Greece's lenders will allocate the bailout funds necessary for it to avoid a near-term default.

While the euro briefly turned negative against the dollar as US stocks fell, the euro was supported also by data showing inflation in Germany ticked up, which should ease pressure on the European Central Bank to lower rates.

EU and IMF inspectors return to Greece on Thursday to decide whether Athens has done enough to secure a new batch of aid vital to avoid bankruptcy, while Germany suggested a new bailout may have to be renegotiated.

Finland on Thursday voted to grant additional powers to the euro zone bailout fund, giving support to the euro. The proposal, which euro zone leaders agreed to in July, needs to be approved by the parliaments of all the euro zone nations.

"With 10 of the 17 member eurogroup having ratified a bailout fund, there is no question that Europe is clearing each hurdle slowly and inching closer to a broader and more ambitious plan to expand their resources and prevent contagion," said Kathy Lien, director of currency research at GFT Forex.

In New York trade, the euro was up 0.1 percent at $1.3606, but down from a one-week high of $1.3690 hit in the overseas session in which a US investment bank was cited as a large buyer.

If European policymakers do not acknowledge that a Greece deal is in the works quickly, the relief rally could come to an end, Lien said. "Although currencies and equities have held on to their gains, the price action in the market suggests that the patience of investors is wearing thin," Lien said.

Fears of near-term Greece default and its impact on Europe's banking system is largely behind the euro's 5.2 percent slide against the dollar this month.

Ongoing talk of proposals to leverage up the region's 440 billion euro rescue fund -- the European Financial Stability Facility -- fuelled demand for riskier assets on Tuesday.

But media reports suggested a split had opened within the euro zone over Greece's bailout terms, highlighting one of the many hurdles lying ahead for policymakers trying to resolve the debt crisis.

Given the euro's losses this month, market participants said risky assets would be supported this week by demand from money managers adjusting their portfolio weighting to compensate for the fall in value of some assets.

"After the weekend when there was talk about leveraging the EFSF to around 2 trillion euro, markets have gone marginally more risk seeking," said Jeff Kendrew, currency strategist at Nomura.

"You've got that and month-end and quarter-end refinancing flows which are positive for the euro given its sell-off this month."

The dollar slipped 0.4 percent to 76.46 yen, not far from a record low of 75.941 hit in August on trading platform BS. Traders cited heavy system fund stops layered under 75.90 yen and real money stops under 75.70 yen.

Investors awaited a speech by Federal Reserve Chairman Ben Bernanke later in the day to see if he offers some reaction to the market's mostly negative response to last week's Operation Twist by the US central bank.

Any hint that even more monetary easing is possible could help underpin risk appetite, which may further boost the euro to the detriment of the dollar.

Copyright Reuters, 2011