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The euro pared its decline against the dollar after reaching a three-week low amid speculation an agreement between the European Union and the International Monetary Fund may allow Greece to avoid a debt default.
Europe’s shared currency erased most of its earlier declines after European Union Economic and Monetary Commissioner Olli Rehn said Greece will be able to get funding from the EU and International Monetary Fund in July as long as it enacts budget cuts. The IMF backed Rehn in a statement. The yen strengthened against the dollar after a report showed an unexpected slowdown in Philadelphia area manufacturing.
“The slight improvement in risk was generated by a perception that Greece will be given some breathing room by the EU in which they will provide funding for upcoming July funding dates,” said Alan Ruskin, global head of Group-of-10 foreign- exchange strategy at Deutsche Bank AG in New York.
Greek Prime Minister George Papandreou will reshuffle his cabinet and seek to win a confidence vote today after attempts to garner opposition support for an austerity plan failed.
EU Commissioner Rehn said “close contact” with the IMF made him confident of an accord at a weekend crisis meeting to pay out 12 billion euros ($17 billion) in July as long as Greece enacts new budget cuts.
Greece’s immediate concern is to obtain 8.7 billion euros from Europe and 3.3 billion euros from the IMF in July, promised as part of last year’s precedent-setting aid package to stave off the euro area’s first default.
“Progress is being made in the discussions to ensure the full financing of the program, and we anticipate a positive outcome on this at the next Euro-group meeting,” Caroline Atkinson, a spokeswoman for the IMF, said in an e-mailed statement today.
German Chancellor Angela Merkel and French President Nicolas Sarkozy will meet tomorrow in Berlin, with pressure increasing for the leaders to reach an accord on a rescue package for Greece. European Union finance ministers agreed on June 14 to convene again on June 19 after they failed to reconcile a German-led push for bondholders to shoulder part of the cost of a new plan for Greek aid.
“If risk aversion continues to pervade markets and we have these ongoing concerns about the situation in Europe, that will continue to see the euro trade heavily,” said Mike Burrowes, a currency strategist at Bank of New Zealand Ltd. in Wellington. “The dollar, the Swiss franc and the yen would be expected to appreciate in that sort of environment.”
Minister Bill English said the currency’s strength was hurting the economy.