Euro rises as Greek deal looms but sentiment fragile

The euro rose yesterday on expectations that the policymakers within the eurozone would approve a second bailout to Greece, although risks over implementing the agreement and a loose monetary policy outlook in the eurozone were predicted to cap the gains of the common currency, reports Reuters.

Analysts expected that the bailout deal, worth 130bn euros, would be signed off by finance ministers early this week following numerous delays. Although there remained financing gaps in the debt reduction plans of Greece, a eurozone official insisted they were not large enough for the process to be derailed.

The euro was expected to rally on the news of the deal being agreed as the possibility would be reduced regarding a default on Greek debt. However, this rally could come to a halt as the bailout package was not forecast to resolve the country’s underlying debt problems.

If the Eurogroup gives the bailout the go-ahead, Greece will be able to come up with a debt restructuring offer, which would invite private investors to exchange Greek government bonds valued at 200bn euros for new ones worth roughly half the amount.

The European Central Bank is set to inject billions more euros into the banking system through its latest refinancing operation next week. The single currency rose 0.7 per cent to $1.3244, from its one-week high of $1.3277.$