Euro gains as investors reassured on aid deal

AP News
Posted: Jun 30, 2011 3:30 PM
Euro gains as investors reassured on aid deal

The euro rose above $1.45 on Thursday for the first time since early June as investors appeared reassured that Greece will get the emergency loans it needs in July to avoid default.

A default could have had catastrophic effects on European banks that hold Greek bonds, and the ensuing rise in borrowing costs would have sent economic ripples across the continent.

Greek lawmakers have this week passed two bills that contain so-called austerity measures that international creditors had required in demand for the release of the crucial July aid. The second bill passed Thursday despite spending cuts and tax increases deeply unpopular with many Greeks.

Talks are also progressing on a second bailout for the indebted country beyond last year's 110 billion euro ($159 billion) package. The July batch of loans was part of last year's deal.

European officials are meeting this weekend to discuss the second bailout. Before the official talks, German bankers said Thursday that they, like French banks, would be willing to shoulder some of the burden of a second aid deal. France's banks earlier this week volunteered to roll over the bulk of their holdings in Greek public debt.

German politicians have pushed for private-sector creditors to make a contribution to the bailout, adding to funds supplied by European taxpayers.

UBS currency analyst Chris Walker also said that the European Central Bank, which meets next week, appeared likely to raise interest rates again as inflation increases. Higher rates are meant to tamp down rising prices. They also tend to support demand for a currency when investors feel confident about healthy global growth.

The euro rose to $1.4521 late Thursday from $1.4428 Wednesday, clearing $1.45 for the first time since June 10.

Elsewhere, the British pound rose to $1.6069 from $1.6058. The dollar fell to 80.58 Japanese yen from 80.91 yen and to 96.38 Canadian cents from 97.07 cents.

The dollar rose to 0.8403 Swiss franc from 0.8343 Swiss franc.