Euro Strengthens as Greece Works to Draft Deal With Creditors

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The euro rose against most of its major peers on speculation that Greece was moving closer to reaching a deal with its creditors, alleviating concern the indebted nation will exit the shared currency.

The 19-nation currency erased losses against the dollar after a government official said Greece started drafting a staff-level agreement on funding with representatives of its international creditors. The accord will envisage low primary budget surpluses, a sales-tax overhaul and a pension-system reform, according to an e-mail to reporters.

“The euro’s finding a little support on some headlines that a potential draft is in the pipeline,” Mike Moran, a senior strategist in New York at Standard Chartered Plc, said by phone. “This would be a first step toward an official deal. It’s somewhat still in its early days.”

The euro gained 0.3 percent to $1.0904 at 5 p.m. in New York, after dropping as much as 0.5 percent earlier. The dollar rose 0.5 percent to 123.66 yen, and reached 124.07, the strongest since July 2007.

While the European Commission said the two sides haven’t reached an agreement, optimism that Greece will clinch a deal has provided some relief for the euro, which has dropped 5 percent in the past two weeks from its three-month high. The currency is on its way to re-establish a long-term downtrend as it approaches $1.0458, the weakest level since 2002.

Temporary Slowdown

A growing set of improving economic data from the U.S. also breathes new life into the dollar’s rally, putting downward pressure on the euro. April economic data from consumer prices to durable goods orders improved, suggesting the first-quarter economic slowdown was temporary. Federal Reserve Chair Janet Yellen said last week she expects to raise interest rates this year.

“A number of factors are combining to weigh on EUR/USD, the bias is for these factors to play out further,” Peter Dragicevich, a strategist at Commonwealth Bank of Australia in London, wrote in a research note. “We think the Fed will raise rates in December 2015, but the risks are tilted to an earlier start. A bring forward in market expectations should be USD supportive.”

Traders assign a 27 percent chance that the Fed will raise interest rates in September, according to data from CME Group, up from 24 percent on May 21. The chance that the central bank will raise rates by the end of this year rose to 62 percent from 56 percent.

The U.S. central bank has held its target for the federal funds rate at virtually zero since December 2008 to bolster economic growth.

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