CURRENCIES: Dollar Falls Vs. Euro On Greece Debt-cut Move
By Deborah Levine
The U.S. dollar dropped versus the euro on Wednesday and fell versus other major currencies as Greece outlined tax changes and budget cuts to help reduce its deficit.
Moody's Investor Service also gave a thumbs up to the plan, saying it lends credibility to the government's resolve to tackle its finances, and the International Monetary Fund called the fiscal package "very strong."
Relief about Greece's outlook, as well as reasonably good economic data out of the U.S., reduced the appeal of the greenback as a relatively safe investment.
"The latest data then fits nicely into the mold of recovering risk appetite," said Alan Ruskin, head of currency strategy at RBS.
The euro traded at $1.3731, the highest since Feb. 9 and up from $1.3608 in North American trade late Tuesday.
The dollar index (DXY), which measures the greenback against a trade-weighted basket of six major currencies, fell to 79.837, from 80.512 late Tuesday.
The dollar turned lower versus the Japanese currency, slipping 0.5% to buy 88.35 yen.
As for U.S. news, the Institute for Supply Management's index on the services sectors rose to 53 last month, higher than economists had expected.
Earlier in the session, the dollar shrugged of data from payroll-firm ADP that showed private employers cut 20,000 jobs in February, in line with expectations of some economists.
Economists surveyed by MarketWatch are expecting Friday's closely-watched Labor Department data to show that nonfarm payrolls dropped by 90,000 in February, though estimates are wide-ranging as analysts try to account for severe winter storms and temporary hiring by the Census Bureau.
Nonfarm payrolls in the order of down 100,000 would not be considered unreasonable for February," said Michael Woolfolk, senior currency strategist at BNY Mellon.
"However, what is taken away in February will be given back in March, with census hiring continuing to bolster results," he wrote in an email. "The real surprise will not be the triple-digit job loss on Friday, but rather further job losses in March and April."
Still to come is the Federal Reserve's Beige Book, a collection of economic anecdotes to be used by policy makers at the next meeting on March 16.
Greece's plan
The Greek government has said earlier that it would implement tax hikes and spending cuts worth a total of 4.8 billion euros ($6.5 billion), or around 2% of gross domestic product.
Fears of a Greek default and debt troubles in other southern European countries have roiled financial markets, boosted political tensions and even raised questions about the future of the 11-year old European single currency.
The yield premium demanded by investors to hold Greek government debt over German bonds continued to narrow, slipping to below 3 percentage points.
But doubts remain about Greece's ability to implement its planned budget cuts in the face of stiff opposition from the nation's unions, economists said.
"The proof of the pudding is in the eating; there is still a very long way to go before Greece's budget deficit is anyway near the 3% of GDP limit" set for the euro zone, said Jane Foley, research director at Forex.com. "Neither Greece nor the euro is out of the woods yet."
Short squeeze
Analysts also noted record short positions in the euro that have built up in recent weeks, meaning traders are heavily betting the shared currency will fall further.
"Traders should realize that buying euros or pounds to cover shorts is completely different from buying the currencies because of a fundamental change in the outlook for the European economy," said analysts at Global Forex Trading.
Also gaining on the dollar, the British pound (CUR_GBPUSD) bounced higher Wednesday after a February survey of purchasing managers in the U.K.'s dominant services sector indicated a stronger-than-expected acceleration in activity.
The pound, which had been the weakest of the world's major currencies in recent sessions, jumped 1% to buy $1.5111, up from $1.4959 late Tuesday.
(END) Dow Jones Newswires
03-03-101201ET
Copyright (c) 2010 Dow Jones & Company, Inc.
