Dollar up against euro as aid plan digested

AP News
Posted: Jul 22, 2011 3:49 PM
Dollar up against euro as aid plan digested

The euro gave back some of its big gain against the dollar on Friday as investors weighed the impact of a crucial new aid plan for Greece approved by European leaders.

The overhaul of the bailout plan gives officials new powers aimed at stopping the debt crisis from spreading to Europe's larger economies, Spain and Italy. The new bailout is Greece's second in two years. Its approval on Thursday helped the euro leap 3 cents in one day to top $1.44.

But the euro fell to $1.4368 late Friday from $1.4409 Thursday, after ratings agency Fitch said it will rule Greece has defaulted on its debt as a result of the new 109 billion euro ($156 billion) bailout. It had been expected the ratings agencies would say Greece had defaulted as a result of the new bailout. The default rating will likely be brief.

Questions remain about what the new plan will be able to achieve.

"Greece has been bailed out yet again and the risks of contagion have been reduced," wrote Gluskin Sheff economist David Rosenberg in a research note. But he noted that many parts of Europe were still in recession. He added that 40 percent of the region that uses the euro still had "excessive debt burdens," which the new bailout mechanism did not fix.

Greece, Portugal and Ireland will have access to low-cost loans. But "there is that talk this is likely not enough to put these countries on a path back to full-scale sustainability," said Brown Brothers Harriman currency analysts. The analysts also said Greece and Portugal could still fall into a mass default years down the road.

In other trading Friday the British pound was little changed, edging up to $1.6308 from $1.6307. The dollar rose to 0.8181 Swiss franc from 0.8163 Swiss franc, was unchanged at 78.43 Japanese yen from 78.43 yen and rose to 94.92 Canadian cents from 94.45 Canadian cents.