Forex Market Review – Euro rises on Greece hopes; Sterling up on BOE policy decision

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Euro rallied against the dollar and yen in the European trading session as Greece moves closer to completing its debt restructuring plan through the PSI debt swap. As the deadline looms by 20:00 GMT tonight, more participants are signing up for the swap, likely enabling Greece to force the deal through. The deal replaces existing bonds with a package of new securities with long maturities and less than half the face value. Completion of the swap is needed as a condition for Greece to receive a 130 billion euro bailout package from the EU/IMF.

Meanwhile, the European Central Bank announced it left its benchmark interest rate unchanged at 1.0 percent today. This was expected, and euro was little changed after the announcement, remaining near a session high reached earlier. EURUSD soared to a high of 1.3263, moving well off a three week low of 1.3095 reached on Wednesday.

Sterling began its ascent against the dollar early in the London session on speculation that the Bank of England would leave their debt-purchase program on hold. GBPUSD hit a high of 1.5830 before easing slightly and was little changed after the interest rate announcement. BOE, left its key lending rate and its asset-purchase program unchanged as expected, at a record low 0.5 percent, where it has stood since March 2009. The bank’s Monetary Policy Committee also voted to leave the asset-purchase program, the centerpiece of its quantitative-easing strategy, unchanged at 325 billion pounds after boosting it by 50 billion pounds in February.

Yen extended losses against the dollar in European hours, as the Japanese currency was hurt by a report early today showing Japan’s current account deficit reached a record high. USDJPY peaked at 81.70 after steadily rising from the day low of 81.06. Meanwhile, euro surged against yen, as the single currency was broadly stronger today on Greek PSI hopes. EURJPY rose to a high of 108.34 versus an early low of 106.59.

The Australian dollar made up for earlier losses and rose to a high of 1.00667. Weak Australian jobs data earlier in the day pressured aussie down to 1.0532 but risk appetite helped it bounce.

Upbeat market sentiment eased demand for the safe haven U.S. dollar, sending it lower against risk currencies and most counterparts. The ICE Dollar Index, which tracks the U.S. dollar against a basket of currencies, dipped to 79.70 from 79.866 late Tuesday.

Dollar fell against the Swiss franc, with USDCHF down to 0.9086 from 0.9159.

The weaker dollar helped lift gold prices to $1,703.44 from $1,688.16 during European trading. Gold and dollar usually have an inverse price relationship.

Looking ahead, the focus shifts to the much anticipated U.S. non farm payroll report out on Friday. Markets look at this jobs report as a gauge of the health of the U.S. economy, and could cause large swings in the U.S. dollar, as well as risk currencies.