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01.07.2011 16:53

American focus:

The euro was poised for its first weekly gain in a month versus the dollar as Greek Prime Minister George Papandreou won approval for an austerity plan needed to keep aid flowing, while German banks agreed to roll over Greek bondholdings maturing through 2014. The Dollar Index was set for its biggest weekly drop since the first week of June.
“The risk of a default has really fallen significantly and Greece is moving in the right direction, so that’s why we’re seeing traders reduce their safe-haven bets and buy euros and other currencies,” said Kathy Lien, director of currency research with online currency trader GFT Forex in New York.
The European currency fell as much as 0.5 percent after Institute for Supply Management’s factory index showed U.S. manufacturing unexpectedly expanded at a faster pace in June. The measure rose to 55.3 last month from 53.5 in May, the Tempe, Arizona-based group said today.
“This is a really strong number for the U.S.,” said Mark McCormick, a New York-based currency strategist at Brown Brothers Harriman & Co. “You’re getting a little bit of selling pressure on the euro just based on how strong the U.S. ISM numbers were.”
The carry trade of selling dollars to buy the currencies of Norway, Australia, Canada and New Zealand has more than tripled this week as investor appetite for higher-yielding assets increases.
Canada’s dollar strengthened as much as 0.3 percent against its U.S. counterpart to the highest level since May 12.
The euro was supported as traders increased bets the European Central Bank will tighten monetary policy, pushing euribor futures lower. The implied yield on the March 2012 contract rose four basis points to 2.01 percent.
“The Europeans are trying to avoid default, but are not choosing devaluation; in the U.S., the Federal Reserve would rather see the dollar weaken and help create jobs and is assuming that won’t create too much inflation,” Kit Juckes, head of currency strategy at Societe Generale SA in London, said during a radio interview on “Bloomberg Surveillance” with Tom Keene and Ken Prewitt.
“As long as that choice is there, unless there’s a disaster in the global economy that makes everyone just run and put their money under a mattress, then we will end up with a weaker dollar,” Juckes said.
Investors expect the ECB to increase interest rates by 76 basis points during the next year, up from a forecast 16 on June 22, according to a Credit Suisse Group AG index based on swaps.
ECB President Jean-Claude Trichet reiterated yesterday that policy makers are in a state of “strong vigilance” against inflation, highlighting chances of a rate increase at their meeting on July 7. The central bank raised its key rate in April for the first time in almost three years, lifting it by a quarter point to 1.25 percent.

Market Focus

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  • German private sector output growth slowed for the second month running in July
  • ECB's Mersch says as conditions normalise, it is unlikely that uncoventional policies will remain necessary
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