Euro firm as markets pin hopes on Greek debt deal

18/02/2015 08:24 AST

The euro held firm in early Asian trade on Wednesday, as investors stuck to hopes that Greece will find common ground with its euro zone partners and avoid a chaotic exit from the currency union.

The euro traded at $1.1411, turning positive on the week as it recovers from a low of $1.13195 hit on Monday.

Against the yen, it fetched 136.06 yen, compared with Tuesday's low of 133.96 yen.

Although Greece rejected a proposal to request a six-month extension of its international bailout on Monday, market players are betting that an agreement will be reached by the end of this week.

A source close to the government said Greece intends to ask on Wednesday for an extension of a loan agreement with the euro zone.

The source drew a distinction between a loan agreement and the full bailout programme, which Athens' new government insists is dead.

Still investors expect a compromise on the bailout programme will be reached as a failure to do so could lead to a disorderly Greek exit from the currency bloc.

Until such a time, markets will likely stay on edge, limiting any gains in the euro in the near term.

"There remains uncertainty on whether the bailout programme will be extended," said Shin Kadota, chief FX strategist.

Hopes of a Greek debt deal pushed the safe-haven yen lower.

The yen weakened to 119.22 yen to the dollar, stepping back from Monday's high of 118.11 yen.

The Bank of Japan is widely expected to keep its policy settings on hold on Wednesday, but focus will be on the press conference by Governor Haruhiko Kuroda later on Wednesday given recent speculation the BOJ is in no hurry to ease policy further.

Markets will then switch their attention to the minutes of the U.S. Federal Reserve's last policy meeting due later in the global day, where traders will likely look for any signs of discussion on the timing of a rate hike.

U.S. debt yields have surged in recent days, with 30-year bond and benchmark 10-year note yields climbing to seven-week peaks, on growing expectations the Fed could flag a possible rate increase as early as June in its next monetary policy statement.

The prospect of a Fed rate hike by mid-year helped to push the dollar index to a 11-year high last month, and it has been consolidating since then.

The dollar index last stood at 94.145, little changed from late U.S. levels and off its January peak of 95.481.

Reuters