Friday, July 22, 2011

Greece is placed on selective default by rating agencies

Previous session overview
The euro on Friday held onto most of its gains made overnight on news of a comprehensive bailout package for Greece, but doubts about a long-term solution for the euro zone's debt problems made traders in Asia wary of pushing the single currency higher.

Leaders of the 17 euro zone member countries agreed to enhance the European Financial Stability Facility, giving the bailout fund more flexibility in its purchases and allowing it to buy sovereign debt in the secondary market if deemed necessary. The European Central Bank can also accept Greek bonds as collateral for its fund provision even if Greece is placed on selective default by rating agencies. 

At 0445 GMT, the euro was at USD1.4390 after it jumped to USD1.4440 in late U.S. trade on Thursday on the back of the bailout announcement. Against the yen, the euro was at JPY113.12 from JPY112.98. 

The dollar firmed against the yen in Asian trading despite worries over the showdown between the White House and congressional Republicans over raising the U.S. debt ceiling, as buying from importers and concerns over possible yen-selling intervention lifted the greenback higher.
As of 0445 GMT, the dollar was at JPY78.62 from JPY78.31 late Thursday in New York. 

The U.K. pound was at USD1.6303 from USD1.6315. The dollar was at CHF0.8177 from CHF0.8150. The ICE Dollar Index, which tracks the U.S. dollar against a basket of currencies, was at 74.114 from 73.910.

The Australian dollar rallied to 10-week highs Friday as global markets welcomed news of a comprehensive package of measures in Europe to deal with Greece's chronic debt problems. At 0630 GMT, the Australian dollar was at USD1.0841, up from USD1.0730 late Thursday. Against the Japanese yen, the Australian dollar was at JPY85.16, up from JPY84.55.
Market expectation
Over the long term, questions remain about whether the euro-zone's bailout fund, the European Financial Stability Facility, will be expanded and how ratings agencies would treat a potential debt restructuring in Greece. Ratings agencies have said in recent months that a distressed Greek debt restructuring could be considered a default.

EURSEK testing SEK9.04 after Greek deal says dealers as the currency benefits from some returning risk appetite after agreement in Brussels. SEK strengthening may pause there. A close below SEK9.04 would confirm that EURSEK is set to trade back in a range between SEK8.86 and SEK9.05, dealers said.

European stocks are seen opening higher Friday, following the lead of equity markets in the U.S. and Asia which made gains on a deal reached at the meeting of euro-zone leaders in Brussels for a second bailout package for Greece.