The euro rebounded against the dollar to rise above $1.31 on optimism that a Greek bailout deal is near. There were reports that a Greek bond swap is on the table and some European national central banks may be willing to swap their Greek debt holdings as soon as this weekend ahead of a meeting of euro zone finance ministers on Monday. This puts Greece on track to be approved for a second bailout.
Prior to this news, the euro had been tumbling since Wednesday on talks of a delay in the bailout deal until after the Greek elections in April, creating uncertainty in the markets about how Greece would make its next debt payment on maturing bonds on March 20. Even if the Eurogroup does not approve the whole 130 billion euro bailout amount, Greece is highly likely to at least get something that will allow it to pay the bond redemptions to Greek bond holders in March and avert a default by then.
EURUSD rose to 1.3145 in New York trading hours, bouncing from a low of 1.2973, the lowest since January 25. EURJPY hit a two-month high of 103.67. EURGBP climbed to 0.8315 from 0.8276.
Risk appetite pushed investors out of the safe haven dollar. The ICE dollar index which tracks the greenback against six currencies, traded at 79.333, down from 79.641 late Wednesday.
Further boosting market sentiment was a series of positive US economic data. US jobless claims fell more than expected to a near four-year low and US housing starts surprisingly jumped as well, showing signs of a recovery in the US.
In other currencies, GBPUSD rose to 1.5810 from 1.5653. The commodity-linked aussie and Canadian dollar also got a lift by upbeat sentiment. AUDUSD rose to 1.0772 from 1.0644. Gold, Australia’s major export, rose over $25 on the day to US$1,729.70 due to the weaker US dollar (USD and gold have an inverse price relationship). Canada is a major oil exporter and crude oil rose to US$102.66, helping buoy the Canadian loonie. USDCAD fell to 0.9952 from 1.0049.
The safe haven yen weakened further as USDJPY surged to 78.95, the highest level since the October 31 Bank of Japan intervention.