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The euro climbed to the highest in almost three weeks against the dollar on prospects the European Central Bank will increase interest rates next week to curb inflation and as European ministers are set to approve the next aid payment due to Greece.
Riskier assets advanced against the Swiss franc and the dollar after German financial firms agreed to roll over Greek debt holdings. Greek Prime Minister George Papandreou won approval of a second bill to authorize his 78 billion-euro ($113 billion) package of budget cuts and asset sales, a key to receiving further international financial aid.
“It looks like a risk-on day with equities continuing to perform even with QE2 wrapping up,” said John Doyle, a strategist in Washington at currency-trading firm Tempus Consulting Inc. “The euro retraced all of its losses from the week prior. German banks reaching a deal on Greek debt and the hawkish comments out of ECB President Jean-Claude Trichet cements the fact that they’re going to raise interest rates next week.”
German banks have agreed to roll over about 2 billion euros in the Greek bonds they’re holding that mature through 2014, German Finance Minister Wolfgang Schaeuble said today. Papandreou garnered the support from 155 lawmakers in the 300- strong chamber, with 136 voting against, Deputy Parliament Speaker Grigoris Niotis said in remarks carried live on state- run Vouli TV today.
ECB President Trichet today repeated that policy makers are in a state of “strong vigilance” ahead of the July 7 meeting, a phrase he has used before tightening monetary policy in the past.
Investors anticipate the ECB will add 70 additional basis points to its benchmark interest rate in the next 12 months, according to a Credit Suisse Group AG index based on swaps. That compares with 46 basis points yesterday.
The yen pared gains against the dollar after the Institute for Supply Management-Chicago Inc. said today its business barometer unexpectedly rose to 61.1 in June from 56.6 a month earlier. Figures greater than 50 signal expansion.
“Chicago PMI massive surprise top side, new orders sharply up inventories down,” said Sebastien Galy, a senior foreign- exchange strategist at Societe Generale SA in London. “That would confirm the manufacturing shock thesis. It’s risk on, U.S. dollar down and dollar-yen tempted to drift higher with U.S. Treasury yields.”
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