Euro drops despite signs of progress on Greek deal

The euro dropped against major currencies on Tuesday despite signs of progress Greece is close to reaching a deal with its creditors, as investors looked beyond the Greek debt dilemma.

European leaders have welcomed the proposal offered by the Greek government, but still there are some differences over reforms.

The proposal is “a certain step forward, but it was also said very clearly that we’re not yet where we need to be,” German Chancellor Angela Merkel said on Monday after the EU emergency summit.

European officials have warned the deal is not done yet, where Greece was given 48 hours to reach a deal with its creditors.

“Hours of the most intensive deliberations lie ahead of us,” Merkel said.

Greek Prime Minister will face a daunting challenge as he discusses reforms in the Parliament, amid wide-rage protests.

The ECB lifted its assistance to Greek banks by about 1.9 billion euros to 87.8 billion on Monday, following massive deposit withdrawals from Greek banks last week.

Some investors thought that while Greece may reach a deal and avoid default, there would be several confrontations between Athens and its creditors in the future.

Looking ahead, it is clear that the will be divergence in monetary policy between the Fed and ECB, as the money printing by the ECB would keep pressure on the euro while raising interest rates by the Fed would support the dollar.

The EURUSD plunged for a third straight session on Tuesday to trade around 1.1242 after touching a low of 1.1229.

Against the yen, the euro dipped to trade at 139.98, compared to the session’s opening at 139.87.

The euro failed to get support from upbeat business report that showed euro area manufacturing and services expansion widened in June.

Flash PMI composite index of manufacturing and services posted its highest level in more than four years to record 54.1 from 53.6 in May. Analysts’ had forecast of a retreat to 53.5.

Ahmed Mamdouh

Ahmed Mamdouh, Co-Founder and Head of English Fundamental Analysis at FXComment.com, with 7 years of experience in the financial markets. Mamdouh holds a Master’s Degree in Economics from The American University in Cairo and a Bachelor Degree in Economics from The Faculty of Economics and Political Science, Cairo University.

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