Multi-billion aid pack deal finalized by Greece

Monday, May 3, 2010

The Euro fell from a one-week high against the U.S Dollar on concern that the €110 billion-euro ($146 billion) bailout package for Greece will fail to contain the region’s sovereign-debt crisis. The single European currency declined for the first time in four days against the U.S Dollar and Japanese Yen as EU leaders prepare to meet on May 7th to discuss the timeline of the parliamentary approval for loans to Greece, and as Germany plans to debate the plan on the same day. In the Asian forex online trading session this morning, the Euro dropped to $1.32047 from $1.32934 on Friday’s close, and down as much as 1.12% from yesterday’s high of $1.33595. The EUR/JPY struck a low of 123.977, down 1.17% from yesterday’s high of 125.450, and down 0.63% from Friday’s close.

Yesterday, Greek officials finalized a deal with the European Union and the IMF that will give Greece access to a muti-billion euro financial bailout. Greek officials agreed to budget cuts worth €30 billion ($40 billion), on top of measures already agreed and aimed at reducing the nation’s colossal budget deficit. The aid package, expected to total up to €110 over three years, represents the first rescue of a member of the 16-nation euro zone. On Sunday, the finance ministers of 16-euro nations agreed that the 15 other countries would lend €80 billion over three years. The IMF will, in parallel, offer a €30 billion package.

The Euro dropped for a fifth month versus the greenback in April, the longest stretch of losses since November 2008 as fear escalated that Europe’s deficit crisis would spread. Last week, the 16-nation Euro touched $1.311531, the lowest level since April 2009, when Standard & Poor’s cut Spain’s credit rating was cut from AA+ to AA, a sign that the debt crisis is spreading. It fell below $1.32 the previous day for the first time in a year after S&P sliced Greece’s credit rating to junk and lowered Portugal’s to the third-lowest investment grade.

In the United States, a report showing the economy grew at a slightly slower-than-expected pace in the first quarter had little impact on the greenback. Despite the below-forecast headline number, analysts said the GDP report shows signs of an improving economy. On Friday, the Advance GDP showed that the economy expanded by 3.2%, slightly slower than the predicted 3.4%, and significantly smaller than the 5.6% growth seen in the last quarter of 2009. On Friday, the USD/JPY hit a high of 94.569, before settling back down to close the week at 93.837, 0.17% below its opening price. The USD was up against the British Pound, closing the week at $1.52584, up 0.55% from the day’s opening price.

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