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Euro dips as officials strive to head off Greek exit
[LONDON] The euro dipped on Wednesday, buffetted by a flurry of reports on new concessions made by Greece to its European creditors and the chances those might lead to a deal that prevents it becoming the first country to crash out of the single currency.
In a feverish morning, Prime Minister Alexis Tsipras' latest proposals sent European stock markets higher but, in line with an often contradictory performance over the past month, the euro quickly handed back all of its own gains.
Greece's default overnight on its International Monetary Fund loans had weakened the single currency overnight by around half a percent and it was stuck around those lows mid-morning in Europe at $1.1108.
"Markets reacted (to Tsipras) and then quickly unreacted," said Richard Benson, co-head of portfolio investment at currency management firm Millennium Global. "Judging by what Ms Merkel said last night, unless they cancel the referendum, any chatter between now and the weekend is null and void."
Some dealers said a fall in Spain's manufacturing purchasing managers index had also prompted some losses for the euro and a raft of US and European data over the next couple of days may distract markets briefly from the Greek saga.
While the mood on major currency markets remains tense, the volumes of trade have been relatively limited as traders await the weekend vote by Greeks on whether to accept bailout conditions for international aid.
Strategists at a number of international banks have said the euro will fall sharply if it finally becomes clear Greece is leaving the bloc, but there has been little price action to support that thesis so far.
"(If) we get some sort of deal to prevent the referendum the euro would obviously see a relief rally on that," said Adam Myers, senior currency strategist at Credit Agricole in London.
"But I think most people are aware now that Greece is such a small part of eurozone GDP that the effect will be relatively limited if it did leave."
Against the yen, which has been the obvious target of capital seeking a safe haven from the Greek worries, the euro was marginally higher at 136.55, after having fallen nearly 1 per cent on Tuesday, reflecting the gains for riskier assets.
The biggest mover among major currency pairs was the New Zealand dollar, gaining half a percent to $0.6795 with dealers citing gains for some Asian stock markets as one driver.
The kiwi and the Australian dollar have both suffered from the economic weakness in China that has helped drive a sell-off on markets there. Shanghai was down another 5 per cent on Wednesday, but Hong Kong and other indices were higher.
"There was some interest from exporters to buy dollars this morning, but Greece is still the biggest driver in all this," said one London-based trader in the kiwi.