Euro steady on central bank expectations

The euro sat just below three-week highs versus the dollar today, steady on expectation that world central banks will counter any negative fallout from the Greek elections this Sunday.

G20 officials said that central banks from key economies are ready to carry out action to ensure the stability of financial markets by offering liquidity and halting a credit squeeze should the election result impact markets. Coordinated action is expected to provide relief to the single currency and support markets although any bounce may prove temporary due to the Spain’s heightened borrowing costs and the contagion risk to Italy, the third largest economy in the eurozone.

The dollar was also pressurised on expectations that the US Federal Reserve could resort to additional monetary easing after data from the labour market was worse than anticipated and consumer prices fell last month.

The euro fell on the day by 0.1 per cent to $1.2619, still near the three-week high reached on Monday of $1.2672, hit after Spanish banks agreed a 100bn euro aid package last weekend. The dollar index dropped to 81.703, a three-week low versus a basket of currencies.

Much of the euro’s near-term trading will depend on the Greek election outcome on Sunday. Traders quoted offers to sell of above $1.2660 rising to $1.2670 and option expires at $1.2600.