Azernews.Az

By Bloomberg

The euro rallied after its biggest drop in three months as European leaders sought to break the deadlock over Greece’s debt.

The common currency strengthened against most of its major peers after falling versus all of them on Tuesday. Greece’s creditors handed the government revised terms for an agreement as Prime Minister Alexis Tsipras expressed incredulity that his own list of proposals to secure bailout funds had fallen short. German bonds rallied on haven demand.

“Given the ferocity of yesterday’s euro selloff and with uncertainty around Greece still lingering, the market doesn’t seem ready to jump 100 percent back into sell euro-dollar mode,” Matt Derr, a foreign-exchange strategist at Credit Suisse Group AG in New York.

The euro advanced 0.3 percent to $1.1196 as of 8:52 a.m. New York time, after diving 1.5 percent on Tuesday, the most in three months. The single currency rose 0.3 percent to 138.78 yen, erasing some of its 1.1 percent slump Tuesday.

Germany’s 10-year government bond climbed, pushing the yield down 0.04 percentage point to 0.83 percent.

Annual View

The euro has dropped 4.3 percent this year, the worst performer after New Zealand’s dollar among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes.

“After the euro’s tumble yesterday, it is harder to tell if Greek debt stress is good or bad for the euro,” Greg Gibbs, a strategist at Royal Bank of Scotland Group Plc, wrote in a client note. “In the end, the prospect of a new deal only served to allow the market to reassess broader fundamentals from a cleaner slate.”

Tsipras planned to meet Wednesday with European Central Bank President Mario Draghi, International Monetary Fund Managing Director Christine Lagarde and European Commission President Jean-Claude Juncker in an effort to reach a deal before Greece’s bailout expires and about 1.5 billion euros ($1.7 billion) in payments come due to the IMF on June 30.

“The euro has recently moved in the same direction as core government bonds,” said Jane Foley, a senior currency strategist at Rabobank International in London. “With Greece failing to secure a deal, risk appetite for higher-yielding assets diminished and hence demand for the euro.”

Less Concern

A Barclays Plc report published this week showed that fewer than 20 percent of investors who responded to its survey thought a departure by Greece from the monetary union would be bad for wider markets.

Yet, Greek developments can still affect the common currency through their impact on a bond yield spread to Treasuries, which is a key driver of the euro, according to Kit Juckes, a London based strategist at Societe Generale SA. A deal on Greece may reduce demand for German bunds as a haven, pushing up yields and boosting the euro, he said.

“The euro’s move against the dollar is still all about rate differentials,” Juckes said. “We have a bounce in growth optimism. A Greek resolution would probably lead to a rise in yields that further narrow the spread between Europe and the U.S.”