The euro had some gains on Friday, because of strategic moves by key central banks. Though the gains are not likely to last as the Greek debt crisis is still critical.
Investors were reluctant to make heavy bets ahead of a meeting of EU finance ministers in Poland which U.S. Treasury Secretary Timothy Geithner will also join. Discussions are expected to focus on leveraging the euro zone’s bailout fund to make it more effective in fighting the debt crisis.
The euro last changed hands at $1.3861 , off a one-week peak of $1.3937 hit on Thursday but well above a seven-month trough below $1.35 plumbed on Monday. The common currency has bounced some 2 percent so far this week.
“If we again only hear some verbal reassurances about Greek problems and no concrete action, that’d surely be the end of the rally in the euro,” said Sumino Kamei, senior currency analyst at Bank of Tokyo-Mitsubishi UFJ.
The rally followed an announcement that the European Central Bank will liaise with the U.S. Federal Reserve, the Bank of England, the Bank of Japan and the Swiss National Bank to provide three-month dollar loans to banks to prevent the money market from freezing up.
The three-month euro/dollar cross currency basis swap , or the relative premium for swapping euro LIBOR for dollar LIBOR, narrowed to around 89 basis points after the announcement, from as wide as 115 basis points on Monday.
“Valuation-driven retracements to resistance at 1.4014 and 1.4263 are expected to attract renewed selling interest for a test of the next support level at 1.3428,” George E. Davis, an analyst at RBC Capital Markets, wrote in a note to clients.
Euro zone banks have faced dollar funding strains in recent months on mounting fears that Greece will default on its debt, hitting institutions that have large exposure to the nation.
“Obviously it’s not a long-term solution, we need to see some resolution to the sovereign debt issue to give markets confidence that we’ll have stronger growth over the medium term,” said Spiros Papadopoulos, a senior market economist at National Australia Bank.
The Australian dollar , received a welcomed fillip after the central banks’ move and gained more than 1 cent to last trade at $1.0349, off an overnight trough of $1.0183. It has been under pressure this week following heavy liquidation by foreign funds of long positions in Asian currencies on growing fears that another global credit crunch may be looming.
Asian traders linked falls in the Aussie to the liquidation by Goldman Sachs of its roughly $1.6 billion Global Alpha fund and some expected that, owing to its size, it could still put more pressure on the currency. The fund will be closed in the next few weeks.
The markets brushed off weak U.S. data showing higher-than-expected inflation and jobless claims, reinforcing views that the Federal Reserve will offer only modest stimulus measures.
AAR, ABC, AEM and more showed more then .20 loss on Thursday.