Euro recovers versus dollar after IMF head arrest

AP News
Posted: May 16, 2011 4:29 PM
Euro recovers versus dollar after IMF head arrest

The euro recovered from early declines Monday triggered by fears that the weekend arrest of International Monetary Fund chief Dominique Strauss-Kahn could hinder the organization's role in helping Europe dig out of its debt crisis.

The euro rose to $1.4192 Monday afternoon in New York from $1.4168 Friday. The shared currency had fallen as low as $1.4046 earlier because of worries about the absence of Strauss-Kahn from key negotiations on European aid for the region's most indebted countries.

"It is unclear if the arrest of (Strauss-Kahn), who was supposed to be an integral part of today's negotiations in Brussels, will impact the talks about European aid packages...But it will certainly not make negotiations any easier," wrote Brown Brothers Harriman analysts in a research note.

On Monday, the European Union signed off on a $110 billion aid package to Portugal. Some concerns eased after the IMF released a statement saying the organization is still fully functional. But talks continued about a second round of aid for Greece that could help avert a debt restructuring. Such a default could harm Europe's banks, which hold lots of Greek bonds. Talks continue Tuesday.

Still, others thought the IMF's immediate course of action would not be affected by Strauss-Kahn's absence.

"Strauss-Kahn's fate is unlikely to alter IMF policy inside the eurozone," UBS analyst Gareth Berry said in a note to clients. "Greece and Ireland have made agreements with the IMF as an institution rather than with its head."

The French economist was arrested in New York on Saturday for allegedly sexually assaulting a maid in a hotel near Times Square. He was ordered to jail without bail on Monday, removing him from ongoing discussions on how to contain Europe's long-running debt crisis. The IMF is a lender to Greece, Ireland and Portugal.

Data from Europe showing rising prices also suggested that the European Central Bank remains on track to raise interest rates this summer, said Camilla Sutton, chief currency strategist at Scotia Capital. The Federal Reserve keeps the key U.S. rate near zero. Central bankers raise rates to counteract inflation, and higher rates tend to support demand for a currency.

In other trading Monday, the dollar was mixed against other currencies around the world. The British pound rose to $1.6211 from $1.6174 Friday. The dollar was unchanged at 80.84 Japanese yen, but fell to 0.8832 Swiss franc from 0.8923 Swiss franc. Meanwhile, the U.S. currency rose to 97.32 Canadian cents from 96.82 Canadian cents.