The euro moved higher against the dollar in European trading hours, extending gains from the prior Asian session as expectations are rising that euro-zone finance ministers will reach an agreement on a second bailout for Greece at the Eurogroup meeting in Brussels later today.
Further lifting market sentiment was Germany’s central bank upbeat assessment on the outlook for its economy. Germany is Europe’s largest economy. The Deutsche Bundesbank wrote in its monthly bulletin for February that the outlook for the German economy has “perceptibly” improved. That, together with expectations Greece will receive a new 130 billion euro loan deal today, boosted market sentiment.
The second financing package for Greece aims at reducing Greek debt towards 120 percent of gross domestic product by 2020 from the current 160 percent debt to GDP. If the Eurogroup approves the 130 billion euro bailout package today, Greece will be able to launch a debt restructuring offer that aims to halve Greece’s privately held debt though a bond swap with private Greek bond holders. This is worth around 200 billion euros of Greek government bonds that would receive a 50 percent haircut at least.
EURUSD opened in Europe at 1.3209 and rose to a session high of 1.3275, the highest in a week. EURGBP also climbed higher, peaking at 0.8365 after opening the session at 0.8321. EURJPY hovered near the three-month high of 105.73 hit in Asian trading, peaking at 105.56 in Europe.
Risk appetite was kept buoyed after a weekend move by China’s central bank to ease reserve requirements for Chinese commercial banks in an effort to stimulate growth through increased liquidity. The relative safe haven US dollar took a hit from “risk on” sentiment this Monday.
USDCHF opened in Europe at 0.9149 to trade down to 0.9085.
GBPUSD consolidated gains after rising sharply in the prior session to peak at 1.5878.
The safe haven yen weakened against the US dollar, with USDJPY remaining close to the six-month high 79.88 and supported above 79.35.
The US markets are closed for the President’s holiday today so volume will be light going into the North American trading session.