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Tue 28 Jun 2011 10:00 AM

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Euro maintains gain on Greek debt roll-over plan; dollar slips

Dollar drops against euro and yen before data forecast to show US home prices dropped in April

Euro maintains gain on Greek debt roll-over plan; dollar slips
(Getty Images)

The euro maintained Monday’s gain against the dollar on
optimism Greece’s creditors will agree to roll over the nation’s debt to
forestall the currency union’s first default.

The 17-nation euro advanced against most counterparts after
Germany welcomed proposals from French lenders on voluntary participation in
the debt plan. Greek lawmakers will vote tomorrow on budget cuts and asset
sales needed to secure a loan payment and future financing. The dollar dropped
against the euro and yen before data forecast to show US home prices dropped in
April. The won snapped a three-day decline after a report showed South Korea’s
current account surplus widened.

“The initial reaction is fairly positive” for the euro, said
Grant Turley, a senior currency strategist at Australia & New Zealand
Banking Group Ltd. in Sydney. “French banks are arguably the largest private
sector holders of Greece debt.”

The euro was at $1.4294 at 1 pm. in Tokyo from $1.4287 in
New York yesterday after earlier rising as much as 0.3 percent. The common
currency traded at 115.54 yen from 115.58 yen, following yesterday’s 1.3
percent gain. It touched 89.58 British pence, the strongest since June 8,
before trading at 89.51 from 89.35 yesterday.

The dollar bought 80.83 yen from 80.89 on Monday, when it
reached 80.98, the highest level since June 16.

Greek Prime Minister George Papandreou called on lawmakers
to obey their “patriotic conscience” and back tougher austerity measures, as
they began to debate a five-year budget plan yesterday. Failure to pass
Papandreou’s proposed €78bn ($112bn) of cuts and asset sales may lead to the
euro area’s first sovereign default.

France proposed a target of rolling over 70 percent of
Greece’s debt after talks last week with banks. Under the plan, half the Greek
debt held by banks and insurers maturing in the next three years would be
swapped for new 30-year bonds. The redemptions from another 20 percent would be
invested in a special purpose vehicle that would serve as collateral for the
banks, two people familiar with the plan said.

German Finance Ministry spokesman Martin Kreienbaum said in
Berlin his government welcomes proposals from the private sector. German and
French lenders are the biggest European holders of Greek debt.

Euro-region finance ministers are set to meet on July 3 in
Brussels to advance a plan that is supposed to be approved at a follow up
meeting on July 11. A deal on the rollovers is necessary to get the new aid
package passed, a condition for freeing up a €12bn payment from the original
bailout that Greece needs to meet €6.6bn of bond maturities in August.

 “I think it’s all
just band-aid measures at the moment,” said Matthew Brady, executive director
for foreign exchange at JPMorgan Chase & Co. in Sydney. “I’m still firmly
in the camp that euro will go lower. Europe’s not out of its problems at the

The dollar weakened against the euro and the yen before
today’s home price data. The S&P/Case-Shiller index of property values in
20 US cities fell 3.95 percent in April from a year ago, according to the
median estimate of economists in a Bloomberg News survey.

“The market is going to price in how long a slowdown in the US
economy will continue,” said Tsunemasa Tsukada, chief manager for currencies
and financial products in Tokyo at Mitsubishi UFJ Trust & Banking Corp., a
unit of Japan’s largest financial group by market value. “If it’s temporary, it
may help the dollar. If the US has to keep interest rates low for a long time
like Japan, the dollar could fall further.”

The Dollar Index, which tracks the greenback against the
currencies of six major US trading partners, was little changed at 75.276 after
falling 0.5 percent on Monday.

The won advanced for the first time in four days against the
dollar as Asian shares rose and data from the Bank of Korea today showed the
nation’s current account surplus widened last month by the most since October
last year.

“Expectations that Greek creditors are probably headed
toward a rollover agreement are boosting stocks and the currency,” said Ha Jun
Woo, currency dealer at Daegu Bank in Seoul. “The current account, which had a
surplus, also supports the won.”

The current-account surplus in June will likely be at a
similar level to May and the surplus for this year will likely reach $11bn,
central bank director Yang Jae Ryong said.

The won gained 0.4 percent to 1,081.80 per dollar from
1085.63 on Monday, when it touched 1,088.70, its weakest level since June 17.
The MSCI Asia Pacific Index increased as much as 1.1 percent.

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