Morning Forex Overview

Previous session overview

The euro rose slightly against the dollar in Asia Friday on continued expectations for a Greece bailout package, while currency markets shrugged off a hint from Japan's central bank of possible further monetary easing.

The single currency rose to an intraday high of USD1.3266 from USD1.3238 in New York late Thursday, before settling around USD1.3250. Position adjustments by speculators, including Japanese interbank dealers, ahead of the weekend helped push the euro higher, traders said.

The euro's gain came as European Commission President Jose Manuel Barroso said in Beijing during the day that he is confident that an assistance package for Greece will be finalized "very soon, meaning, in the next days."

The dollar traded within a relatively narrow range of JPY93.89 and JPY94.19, with selling by Japanese exporters cancelling out buying by Japanese importers. The news that Bank of Japan Gov. Masaaki Shirakawa told central bank staff to examine new ways to support domestic financial institutions in terms of fund provision did little to boost the U.S. currency versus the yen.

The Pound strengthened versus the US dollar, tracking gains in the euro after a pledge from European officials that debt aid for Greece will come soon suppressed worries about euro zone credit risk. Data showing rising UK house prices also helped to support the pound. UK house prices rose 1 percent in April, increasing for the second straight month and suggesting the housing market is improving after weakness in the sector in 2008 drove the broader economy into recession.

The Australian dollar gained in Asia on Friday after traders added risk bets on views the Greek fiscal drama is nearing its final scene, while increased expectations for another rate hike by the Reserve Bank of Australia also helped.

Market expectation

Traders still expects the euro's recent rally to prove short-lived, doubtful that a planned joint European Union-International Monetary Fund bailout package could fix Greece's debt problems.

Analysts now look for the euro to fall to USD1.29 in the next three months, a downgrade from its previous forecast of USD1.43 for the same period.

The U.K. pound is taking advantage of improved market sentiment in posting recent gains and could extend those advances, especially against the dollar and euro.

European stocks are set to open a little higher Friday, amid news that Greece has pledged to come up with more savings to meet conditions for its bailout package, lifting hopes that a deal for the debt-ridden nation is near.

While economists in Australia maintain next week's interest rate decision by the RBA will be a close call, the local currency will react to whatever is in the accompanying statement, analysts said. Going into Tuesday's decision, the RBA has already hiked the cash rate in five of its last six meetings to the current 4.25% level.

In addition to an interest rate decision, the RBA will also release its quarterly forecasts for inflation and growth next week, which could be even more important by providing some much needed big picture views.