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The euro inched higher against the dollar on Thursday but remained in recent ranges, with currency investors eyeing US data for fresh cues following yet another impasse in last-minute Greek debt negotiations.
The single currency has bounced around in the $1.09-$1.14 area in recent weeks, with strategists arguing over the extent to which it has been affected by Greece’s drawn-out talks with its creditors, as they try to agree on a cash-for-reforms deal to avoid a Greek default and exit from the euro.
EU leaders meet
European Union leaders are due in Brussels for another summit later on Thursday.
Some analysts reckon that with the market betting some sort of a Greek deal will be hammered out, the direction of the euro against the dollar can once again be dictated by fundamental factors: ultra-loose monetary policy in the euro zone versus a move towards higher US interest rates, so a weaker euro.
The currency edged up 0.1 per cent in European trading to $1.1218.
Neil Mellor, a currency strategist at Bank of New York Mellon in London, said the euro would fall on good news from Greece, as investors used it for carry trades — borrowing it and then selling it to buy higher-yielding currencies.
“What has been fairly clear is that every time there’s a chance of a deal the euro plummets, and every time there’s disappointment coming along, it reverses course,’’ he said.
“The only interpretation you can place on that is that the market is looking to use the euro as a funding currency in a carry trade ... The prerequisite of a carry trade is relative stability, so if a Greek deal is on, you sell the euro.’’
Dollar vs yen
The US currency dipped 0.1 per cent to 123.75 yen, pulling back from a one-week high of 124.38 reached overnight after data showed the US economy contracted in the first quarter but less than previously estimated.
The market will have another chance to check the pulse of the US economy when consumer spending indicators are released later in the day, with upbeat readings expected to add to the case for the Federal Reserve to hike rates later in the year.
“The market’s focus is on how much the US economy has recovered in the second quarter from the first quarter,’’ said Masashi Murata, a senior currency strategist at Brown Brothers Harriman in Tokyo.
“A wait-and-see mood is likely to prevail until then.’’
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