Dollar soars against euro as EU dithers on Greece aid
THE dollar is poised for the biggest quarterly gain against the euro since 2008 as European leaders' protracted battle to forge a plan to bail out Greece pushed investors toward the perceived safety of the greenback.
"The dollar is still the safety currency," said Jonathan Xiong, a senior portfolio manager and director at Mellon Capital Management in San Francisco. "The European news that is coming out is unclear, clouded and uncertain. When investors are uncertain, what happens is they buy dollars."
The dollar rose 0.9pc to $1.3410 against the euro last week, putting it on course to post a gain of 6.8pc for the quarter which ends on Wednesday. That would be the largest quarterly rise since it advanced 11.8pc in the three months ended in September 2008.
The European currency strengthened towards the end of last week after leaders of the 16 nations that use the euro put the International Monetary Fund on standby to aid debt-stricken Greece, seeking to snuff out a threat to the currency's stability. They endorsed a plan that calls for a mix of IMF and bilateral loans at market interest rates, while voicing confidence that Greece won't need outside help to cut its budget deficit, Europe's largest.
European Central Bank President Jean-Claude Trichet told reporters in Brussels late on Thursday that he was "extraordinarily happy that the governments of the euro area found out a workable solution".
Earlier, the euro fell to a 10-month low versus the dollar after Trichet said an IMF role in funding a rescue for Greece would be "very, very bad". He has expressed concern that turning to the Washington-based IMF would show Europe can't address its problems.
The dollar is also rising compared to most of the major currencies as well. The Australian and Canadian dollars fell against the greenback for the first week this month amid speculation that gains versus the US dollar and the euro couldn't be sustained. Australia's currency dropped 1.2pc against its US counterpart.
"We're seeing people get out of positions," said Lauren Rosborough, a senior currency analyst at Westpac Banking in London. "The news from euro-zone officials has people looking to go long on the euro against the Australian dollar." A long position is a bet a currency will appreciate.
The loonie, as Canada's currency is nicknamed, dropped 0.9pc against the US dollar, while remaining near the strongest level in 20 months versus the greenback.
Mexico's peso was the only major currency that gained against the dollar last week, as an economic recovery in the US fuelled demand for the Latin American nation's exports.
The Mexican currency gained 4.8pc against the dollar this year, the best performance among the 16 major currencies tracked. (Bloomberg)