FX Roundup: Euro strengthens on German vote, dollar eases

The euro strengthened in early afternoon forex trading on Wednesday after the German parliament voted in favour of a third bailout for Greece, removing the last major obstacle to European Union approval of the €86bn package.

The Bundestag signed off its approval with 454 votes in favour, 113 against and 18 abstentions. There also was some relief that it did not impose any additional conditions on the deal, after fears that Germany's continued support might be dependent on future International Monetary Fund involvement in fiscal monitoring of Greece.

In wake of the development, the euro was up 0.15% against the dollar fetching $1.1041 at 1310 BST. It also recovered against the pound, with £1 fetching €1.41850 down 0.11%.

Kit Juckes, head of forex at Societe Generale, said, “There's a bias to re-test/break EUR/USD 1.11, but really, something needs to change in rate differentials to move the pair meaningfully.”

“Past correlations would tell me that breaking the bottom of the current EUR/USD range, at 1.08, would be best achieved by the US 2-year rate jumping to around 1 1/4%. That's both a huge move relative to the recent range, and a very small one in the context of the historical reaction to Fed tightening being imminent.”

Meanwhile, ahead of the FOMC minutes from the US Federal Reserve, trading in the dollar was decidedly nervy, with emerging market and commodities linked currencies getting a breather against the greenback at close of Asian proceedings.

The Australian dollar was up 0.10% against its US counterpart fetching $0.7348. The US dollar also fell 0.03% against the Hong Kong dollar fetching HK$7.7524, and shed 0.04% against the Japanese Yen fetching JPY124.36.

“I don't really hold out too much hope that the FOMC minutes will magically clear the fog surrounding Fed policy and resolve the debate raging in the market. The City is more circumspect after the repeated failure of the Fed to hike in recent years,” Juckes said.

“Most likely, the minutes will be seen to support the view of the consensus among the commentators, but will fail to allay the fear of inaction amongst the traders/investors. And that would most likely leave markets still wracked by uncertainty, about the Fed, global growth and China.”