Forex - U.S. dollar weaker on Greek bailout optimism

Forexpros - The U.S. dollar fell against most of its major counterparts Tuesday as investors embraced risk upon reports of a pending second Greek bailout package.
 
During late session U.S. trade, the dollar fell against the euro, with EUR/USD gaining 0.87% to hit 1.3244.
 
The single currency rally was triggered after reports that Greek officials were working on the final draft of a bailout agreement in front of a meeting between Greek Prime Minister Lucas Papademos and coalition leaders today.
 
This agreement is critical for Greece to avoid default on March 20 by obtaining its next tranche of bailout funds.
 
Eurogroup President Jean Claude Juncker stated earlier that he is confident Greece will remain in the euro zone, provided the island nation fulfilled its obligations to other euro zone nations.
 
Earlier, Morgan Stanley slashed its fourth quarter 2012 euro forecast to USD1.15 from an earlier projection of USD1.20.  The investment bank expects government budget controls to result in a region wide recession.
 
Meanwhile, the euro was pressured when German data showed a 2.9% drop in the nation’s industrial output during December. Economists were expecting just a 0.1% decline.
 
In additional euro zone bearish news, the International Monetary Fund stated that China’s economic expansion may be cut in half by the euro zone’s debt crisis.
 
This Chinese crisis would warrant significant fiscal stimulus from the nation’s government. The IMF went on to state that China’s growth would drop be as much as four percentage points  from the fund’s current projection for an expansion of 8.2% in 2012.
 
Last week, Morgan Stanley slashed its fourth quarter 2012 euro forecast to USD1.15 from an earlier projection of USD1.20.  The investment bank expects government budget controls to result in a region wide recession.
 
The greenback traded lower against the pound, with GBP/USD trading higher by 0.41% to hit 1.5885.
 
In the U.K., a report by the British Retail Consortium indicated that retail sales fell by 0.03 on the year in January, after climbing 2.2% the previous month on holiday spending.
 
The greenback was higher against the yen but lower against the Swiss franc with USD/JPY higher by 0.51% to 76.94 and USD/CHF falling 0.58% to hit 0.9134.
 
Thomas Jordan, the acting head of Swiss National Bank stated that the central bank’s exchange rate cap on the franc was the most effective tool it had against deflation.
 
Elsewhere, the greenback was weaker against its Canadian, Australian and New Zealand counterparts with USD/CAD falling 0.04% to hit 0.9956, AUD/USD gaining 0.66% to hit 1.0784 and NZD/USD gaining 0.11% to 0.8348.
 
The Australian dollar was lifted after the nation’s central bank surprisingly left its benchmark interest rate unchanged at 4.5%.
 
However, the bank left the potential open for monetary easing if domestic demand continues to weaken.
 
The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, fell 0.60% to hit 78.71.