Euro inches up despite stand-off over Greece

The euro inched up on Thursday on strong German data, clawing back some of the ground it lost the previous day after the European Central Bank said it would no longer accept Greek bonds in return for funding.

The ECB’s surprise announcement late on Wednesday, which means the Greek central bank will have to provide the country’s lenders with tens of billions of euros of emergency liquidity in coming weeks, knocked the euro down almost two cents to $1.1304 in Asian trading.

The currency later regained some ground to trade at $1.1366, up 0.3 per cent from late US trade but well below an almost two-week peak of $1.1534 set on Tuesday during a short-covering rally.

The single currency was lifted on Thursday by data showing German industrial orders surged far more than forecast in December, hitting their highest level since April 2008.

The ECB’s announcement came after Greece’s new finance minister Yanis Varoufakis emerged from a meeting with ECB president Mario Draghi saying the ECB would do “whatever it takes” to support member states such as Greece. “The reason the euro has sold off is because it’s a suggestion that the (Greek debt) talks are getting a bit nastier than the market had anticipated,” said Stephen Saywell, global head of FX strategy at BNP Paribas in London.

“But we still think the main driver of the euro over the next few months will be QE, and policy divergence with the UK and the US rather than a straw poll on structural issues concerning Greece.”

Against the yen, the euro traded at 133.44 yen, up 0.3 per cent on the day but well below a near two-week high of 135.35 yen set on Wednesday.

Some market participants said they viewed worries about Greece as a short-term trading factor rather than a trigger for protracted euro weakness, citing hopes for an eventual compromise with its international lenders.

“I think the market consensus is that Greece will back down in the end,” said Masashi Murata, currency strategist for Brown Brothers Harriman in Tokyo. The euro will probably trade roughly between $1.12 to $1.15 until around March, Murata said.

The dollar was trading broadly lower, down 0.4 per cent against a basket of currencies and extending a decline of almost 1.5 per cent over the past two weeks.

Reuters