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FOREX: Euro Falls As Market Awaits Greek Vote Outcome
By Javier E. David of DOW JONES NEWSWIRES
NEW YORK - Political turmoil in Greece kept the euro under pressure Friday, with markets awaiting the outcome of a confidence vote that could determine whether the country will comply with the terms of a recently crafted financial rescue package.
Prime Minister George Papandreou's surprise decision this week to put Greece's bailout to a national vote touched off days of uncertainty and market declines. Despite what many consider the iron-clad nature of the monetary union, the move prompted wide speculation that a plebiscite would become a precursor to the country withdrawing from the 17-nation currency bloc.
Although the prime minister scrapped the referendum, a looming government confidence vote kept the market on tenterhooks. Analysts are weighing whether Papandreou's exit might lead to the formation of a new government that could try to renegotiate the terms of a Greek bailout, or soften key austerity measures demanded by international lenders.
Meanwhile, markets are growing increasingly concerned that Greece's woes are spilling over into Italy, where government bond yields have recently soared to euro-era highs above 6%.
Selling pressure on Italian debt has come despite efforts by the European Central Bank to step in and buy the country's bonds--even as it sprung a surprise interest-rate cut on markets Thursday to revive the Continent's faltering growth.
"All in all, the euro's been rather stable" despite the ongoing debt crisis, said Jonathan Lewis, founding principal and portfolio manager at Samson Capital Advisors.
Just last week, the single currency jumped to a near two-month high above $1.42, only to steadily decline amid Greece's continued uncertainty. Despite the Continent's financial distress and the predictions of many analysts, the common currency continues to show surprising resilience.
"What the [euro] is telling us is that it's possible to have a weakening economy and a fiscal crisis, but that doesn't mean the currency as a store of value is diminished," Lewis said.
Late Friday, the euro was at $1.3792 from $1.3822 late Thursday, according to EBS via CQG. The dollar was at Y78.24 from Y78.06, while the euro was at Y107.86 from Y107.92. The U.K. pound was at $1.6036 from $1.6035. The dollar was at CHF0.8852 from CHF0.8778.
The ICE Dollar Index, which tracks the U.S. dollar against a basket of currencies, was at 76.931 from about 76.725.
With much of the market focused on Europe, economic data have taken a backseat to headlines from Greece. Investors were disappointed by news that the U.S. economy created 80,000 jobs last month, below analyst estimates for 100,000. The unemployment rate dipped modestly, to 9.0% from 9.1%.
Challenges to global growth would normally be addressed by the Group of 20 largest industrialized and developing nations, but Europe's crisis has stolen much of the agenda. On Friday, the G-20 adjourned a two-day summit in Cannes, France, without an agreement on how to support Europe's newly created bailout facility, or how to prevent Italy from becoming the next domino to fall in the region's debt woes.
Italian Prime Minister Silvio Berlusconi announced at the summit that his country had volunteered to subject its finances to scrutiny by the International Monetary Fund, even though he rejected an offer of funds.
At an estimated $2 trillion, Italy's debt issuance is the euro zone's largest and second only to the U.S. Treasury market in size. Economists are growing increasingly concerned the country's rising debt burden could create even more financial turmoil than Greece has.
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