The euro hit a three-week high against the dollar on Tuesday after a report said Germany could make concessions on efforts to put together a bailout for Greece, helping to ease fears over a Greek debt restructuring. The single currency rose to $1.4425 according to electronic trading platform EBS, but further gains were capped by offers seen above that level, while technical resistance loomed around $1.4450.
Germany is considering dropping its push for an early rescheduling of Greek bonds in order to facilitate a new package of aid loans for Greece, the Wall Street Journal reported, citing people familiar with the matter. The report comes as Europe has stepped up efforts to draft another bailout package for Greece, and Eurogroup leader Jean-Claude Juncker on Monday expressed optimism that a new package was coming together.
"There's quite a big risk premium in the euro based on Greek default concerns, so if Germany lends more money to get them through to 2013, the chances of a disorderly restructuring further down the line become much reduced," said Adrian Schmidt, currency analyst at Lloyds Banking Group.
The report triggered demand for higher-risk, higher-yielding currencies including the Australian and New Zealand dollars, which both rose sharply against the low-yielding yen. By 1120 GMT, the euro hovered around $1.44, below resistance at $1.4454, the 50 percent retracement of this month's fall from nearly $1.50. Above that lay the 61.8 percent retracement of the same move at $1.4568.
The dollar fell more than 0.5 percent against a currency basket to 74.439, as the euro's rally and better sentiment towards riskier assets pushed it to a three-week low. The dollar was flat against the Swiss franc at 0.8520 francs, hovering near a record low of 0.8457 hit on Monday.
The New Zealand dollar jumped 1 percent to $0.8264, a fresh post-float high. Despite the dollar's broad losses, it rose roughly 1 percent on the day to around 81.78 yen as the yen took a broad hit after Moody's said it had placed its rating on Japan under review for a possible downgrade, less than a week after rival rating agency Fitch cut its outlook on Japan's debt.
Some analysts were sceptical about the sustainability of the euro's rise as they believe a Greek debt restructuring is inevitable, and that more aid loans would only throw new debt onto old debt without solving Athen's fiscal problems. "I would fade this rally in the euro for now. Investors will be looking for a more lasting resolution to the Greek debt problems and our economists haven't ruled out the possibility of a voluntary restructuring involving private bondholders," said Valentin Marinov, currency strategist at Citi.
Renewed concerns about Greece's debts have pushed the euro around 2.5 percent lower versus the dollar so far this month, cutting overstretched long euro positions. While euro positioning remains long, it is more balanced than a month ago, and UBS currency analyst Geoffrey Yu said recent, choppy trade illustrated the deep division between euro bulls and bears while euro valuation remains relatively high.