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FOREX-Euro slips to six-week low after Greece approves bailout plan

Published 16/07/2015, 06:22 pm
FOREX-Euro slips to six-week low after Greece approves bailout plan
DXY
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* Euro hits six-week low versus the dollar

* Dollar buoyed as Yellen stays on message about future Fed hike

* Kiwi tumbles to 6-year lows after soft inflation data

By Patrick Graham

LONDON, July 16 (Reuters) - There was no silver lining for the euro on Thursday after Greece voted through austerity demanded in return for another bailout, as improved interest rate differentials drove the dollar higher across the board.

The New Zealand dollar NZD= sank to a six-year low after weak inflation data cemented expectations for a cut in its official rates next week, while the Canadian dollar remained on the defensive after a cut there on Wednesday.

The euro did inch up briefly after the Greek vote but the absence of any greater reaction also seemed to signal a lack of faith that the bailout deal on the table will fix anything, that Athens will stick to its terms and, increasingly, that any of it will matter very much to the rest of the euro zone.

More importantly, perhaps, the spread between short-term dollar and euro interest rates has risen again as expectations of a rise in official U.S. borrowing costs this year solidify.

By 0844 the euro was 0.4 percent weaker at $1.0903, its lowest in six weeks. EUR=

"If we continue to see short-dated Euro rates fall, I think that will drag the euro through the bottom of the current range against the dollar," said Kit Juckes, a strategist with French bank Societe Generale in London.

"We'll break 1.09, moving on to test the May lows just above 1.08."

The European Central Bank meets on Thursday and is expected to take some small steps towards propping up the Greek banking system while sticking firmly to its message on a campaign of extraordinary monetary easing for the euro zone as a whole.

The outcome in Athens clears the way for talks on a third bailout from European partners, but clouds the future of Greek Prime Minister Alexis Tsipras' government following a split in his party ranks. ID:nL5N0ZV0Y1

The fading of any major concern over Greece has helped shift the focus back to the outlook for yield differentials in different economies, giving support to the greenback.

"I think the factor for the euro is monetary policy divergence rather than Greece," said Masashi Murata, currency strategist for Brown Brothers Harriman in Tokyo.

The euro will probably fall further versus the dollar in the near-term, going into the Federal Reserve policy meeting on July 28-29, Murata said.

Still, with Germany driving a huge surplus of trade for the euro zone as a whole and the dollar having failed to make further progress since March, expectations for another major rally are muted.

Against a basket of major currencies, the dollar hit a six-week high of 97.498 .DXY . Against the yen, it held steady at 123.82 yen JPY= .

Even before inflation numbers came in weaker than expected, the New Zealand dollar had been under pressure from a closely watched auction that showed global dairy prices tumbled to a 12-1/2 year low. ID:nL4N0ZV5H3 The kiwi slid to $0.6498, its lowest level since July 2009 and down 1 percent on the day.

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