Euro Extended Gains As Debt Woes Ease - 21.6.2011

US dollar (USD)

Asian stocks rose broadly following gains on US markets as concern eased that Greece will have to default on its sovereign debt after Luxembourg Prime Minister Jean-Claude Juncker reassured markets that a solution will be found in the nearest term. Nikkei Stock Average index added 1% by the end of the session, while all major US indices gained 0.5-0.6% yesterday. The US dollar touched a one-week low against the euro before Fed policy makers begin a two-day meeting amid signs the world’s largest economy growth is slowing and before another report is expected to show existing home sales dropped in May by 5% to this year’s low, keeping pressure on the Federal Reserve to maintain its accommodative policy. The benchmark rate therefore is expected to be kept at 0.25%. The Dollar Index fell today toward 74.7 rising last week to its June high 75.8.

Euro (EUR)

The euro strengthened for a fourth consequent day toward 1.44 against the US dollar, as European leaders reassured investors a Greek default can be avoided and also before economic data tomorrow, which is expected to show industrial orders in the region rose in April by 14%. Today Greek Prime Minister George Papandreou faces a confidence vote in parliament. The decision may be crutial and may determine whether Grecce is to be called the first euro-area default country. Juncker, who also leads European finance ministers group, said yesterday that Papandreou confirmed that the Government is ready to do everything necessary to ensure than financial aid will be delivered from the IMF and the EU. Greece needs parliamentary approval of a 78 billion-euro package of budget cuts to ensure the payment of a fifth loan under last year’s 110 billion-euro bailout. A vote on the austerity package is expected at the end of this month, but Papandreou must first survive a vote of confidence today.

Australian dollar (AUD)

The Australian dollar fell in Asian trading hours today after the Reserve Bank released minutes of its June 7 meeting. Aussie weakened against its major counterparts as the policy makers said "downside risks to the international economy had become a little more prominent." The Bank also mentioned it will estimate Europe's sovereign debt crisis risks and compare it with forecasts of domestic growth and inflation pressure in deciding whether to increase interest rates. However an expected acceleration in inflation due to high commodities prices "suggested that further tightening in monetary policy would be necessary at some point" minutes said and concluded "The flow of data over the past month had not added any urgency to the need for an adjustment to policy." The Reserve Bank of Australia kept its key overnight lending rate at 4.75% in June.