NEW YORK: The euro rose against the dollar on Tuesday as an overnight bailout deal for Greece prompted investors to pare positions against the currency despite doubts about the deal's implementation.
Euro zone finance ministers sealed a 130-billion-euro ($172 billion) bailout for Greece on Tuesday to avert a chaotic default next month after forcing Athens to commit to unpopular cuts and private bondholders to take bigger losses.
The euro hit a session high of $1.3292 after the successful talks overnight. In midday trade, the euro was 0.1 percent higher at $1.3254, with near-term support at the day's low of $1.3184.
"Being short the euro is a stale position right now," said Douglas Borthwick, managing director, head of trading, at Faros Trading in Stamford, Connecticut. "Many had questioned whether or not Greece would stay in the EUR, but last night's decisions were a resounding vote of yes."
Currency speculators' bets in favor of the US dollar soared in the latest week, according to data from the Commodity Futures Trading Commission released on Friday. Euro shorts rose as negotiations about Greece's second rescue package dragged on.
To be short a currency is to bet it will decline in value, while being long is a view its value will rise.
Borthwick said there is market talk that finance ministers are discussing an International Monetary Fund firewall and while nothing has been announced, he believes there is one coming, with expected donors including Japan, China and Mexico to name a few.
"An announcement of some sort will likely come out of the upcoming G20 meeting and that could move the euro sharply higher," he said. "The euro has also yet to catch up with Italian and Spanish bond yields, which have dropped to levels last seen at the start of September of last year."
A break of $1.3320 is seen likely and after that, he said momentum should take over, with the euro possibly reaching $1.40.
"A lot of uncertainty has been removed, with regards to Greece as well as the euro zone's economy," Borthwick added.
Euro zone consumer confidence rose for the second consecutive month in February as Europeans showed timid signs of increased spending after last year's collapse in morale.
The International Monetary Fund forecasts a 0.5 percent contraction in the euro zone economy in 2012.
Investors remain concerned about how Greece would implement the harsh austerity measures demanded of it, while some also saw longer-term risks to the euro following an expected second injection of cheap funds by the European Central Bank next week.
"While the Greece deal removed a temporary risk, the good news was largely priced in ahead of the weekend, " said Camilla Sutton, chief currency strategist at Scotia Capital in Toronto.
"The deal was pretty much expected and the real surprise would have been if no deal was reached," she said. "There are still many hurdles to jump before Greece becomes a non-issue for markets and broader European problems should keep the euro weighed to the downside over the near term."
Sutton said her first-quarter forecast for the euro is $1.29 with a year-end target of $1.25.
The euro may get a lift if euro zone provisional purchasing managers' surveys on manufacturing and services activity on Wednesday and Thursday's German Ifo sentiment survey show some improvement.
YEN AT MULTIMONTH LOWS
Approval of the Greek deal saw the euro hit a fresh three-month high against the yen. It pulled back from that high of 106.00 yen and in New York trade, was last up 0.1 percent at 105.58 yen.
The yen hovered near multimonth lows against most other major currencies as last week's surprise easing by the Bank of Japan prompted speculators to step up selling of the yen.
"Our end-year forecast of 80 yen has almost been hit already," said Mansoor Mohi-uddin, strategist at UBS. "The risks are now to the upside to this forecast with dollar/yen likely to trade in a 75-85 range in future compared to 75-80 previously."
The dollar was last up 0.1 percent at 79.72 yen, not far from 79.89 yen hit on Monday, a 6-1/2-month high.
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