EUR/USD Near 1.10 After Greece Takes Bailout Step

The euro hovered near one-week highs against the dollar early on Friday as relief from Greece taking another step towards a bailout prompted bouts of short-covering, while lower U.S. debt yields put the greenback on the defensive versus the yen.  The euro stood steady at $1.0986 EUR= and within close range of a one-week high of $1.1018 struck overnight. The common currency was lifted after the Greek parliament approved a second set of reforms required to start negotiations with lenders in a bid to avoid bankruptcy.

Still, with the U.S. gearing up to hike interest rates later this year and with Greece’s long-term ability to stay solvent still in doubt, analysts saw the euro declining in the long run.  “News from Greece helped, but fundamentally speaking euro/dollar remains on a downtrend in the long run. European economic indicators and inflation data are not as strong as they were at the start of the year, and of course the U.S. is steadily preparing to hike rates,” said Shinichiro Kadota, chief Japan FX strategist at Barclays in Tokyo.

While the monetary divergence theme – the Federal Reserve has its sights on raising rates while the European Central Bank and Bank of Japan are still deeply committed to monetary easing – is widely expected to favor the dollar, the greenback hit a bump against the yen as well.  The dollar treaded water at 123.88 yen JPY= after failing to consolidate near an overnight high of 124.19.