US dollar falls on Greek bailout optimism

The US dollar lost ground on the majority of its major counterparts on Tuesday as investors acted on reports of a possible second bailout package for Greece, reports Forex.

During the late US trade session, the dollar lost ground on the euro, with the euro gaining 0.87 on the dollar to hit 1.3244. The rally in the single currency was triggered by reports that officials from Greece were drawing up the final draft of a bailout agreement in a meeting between coalition leaders and Greek Prime Minister Lucas Papademos on Tuesday.

The agreement is crucial in ensuring Greece avoids default on 20 March by obtaining its next chunk of bailout funds. Jean Claude Juncker, the president of Eurogroup, revealed that he was confident Greece would be able to remain in the eurozone, as long as it long as it could fulfil its obligations to other nations within the region.

Earlier, Morgan Stanley lowered its fourth quarter euro forecast for 2012 to USD1.15 from the previous projection of USD1.20. The bank anticipates that government budget controls will lead to a region wide recession. Elsewhere, the euro was pressured after German data revealed a drop of 2.9 per cent in the country’s industrial output in December. Economists had forecast a decline of just 0.1 per cent.

In further bearish news for the eurozone, the International Monetary Fund said that China’s economic expansion could be cut in half as a result of the debt crisis within the eurozone. The Chinese crisis would require substantial stimulus from the country’s government. The IMF stated that China’s growth would fall by up to four per cent from the fund’s current forecast for an 8.2 per cent expansion this year.