The euro leaped to a three-week high against the US dollar on Thursday, ending with gains for the month and the second quarter, buoyed by relief that Greece will avert an imminent default and on expectations that eurozone interest rates will rise again next week. Greece approved detailed austerity and privatisation bills on Thursday in a crucial vote to secure emergency international aid.
--- Euro gains in June and 2nd straight quarter vs dollar
"While much uncertainty about the outlook for Greece remains, the euro should enjoy additional near-term gains on the notion that imminent default is likely to be avoided," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.
Investors will now likely turn attention to talks on private-sector participation in a new Greek assistance program. German Finance Minister Wolfgang Schaeuble said he had reached agreement with German banks and he expected a eurozone deal on Sunday, based on a French plan for a voluntary debt rollover.
This type of plan should give the euro additional gains, but doubts about Greece's ability to effectively implement additional austerity measures should keep the euro's upside limited, Esiner said. The euro hit a high of $1.45388 on trading platform EBS and last traded at $1.4502, up 0.5 percent for the day. Month-end flows supported the euro, helping propel it to a three-week high above $1.45, ending the month of June with a 0.8 percent gain.
The euro gained 2.5 percent against the dollar in the second quarter and climbed 8.4 percent in the first half of the year. Thursday marked the end of the US Federal Reserve's second round of quantitative easing, or QE2, as the program was known. QE2, which entailed buying $600 billion in US Treasury securities, was tantamount to printing money. The euro is up about 15 percent since the Fed first signalled QE2 intentions in late August of last year.
"The end of QE2 is dollar-positive, but that will not be seen immediately," Esiner said. "Over the medium-term, Treasury yields should rise to more normal levels and that will ultimately support the dollar." Meanwhile, the US dollar's share of allocated currency reserves fell in the first quarter, while global central bank holdings surged to a record near $10 trillion.
Steven Englander, global head of G10 strategy at CitiFX, a division of Citigroup in New York, said one take-away is that the reserve manager community as a whole did not have a uniform EUR buying bias. "This is a big surprise, given how many anecdotal reports of reserve manager buying of EUR emerged in Q1," he said. "This adds to our skepticism that the EUR's gains are sustainable."
The dollar fell 0.3 percent to 80.48 yen, on track for a loss of 3.2 percent this quarter and a loss of 0.9 percent for the first half of this year. The euro also found support after the European Central Bank signaled it would raise interest rates again next week as data showed inflation in June well above the bank's target.
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