Dollar rises at end of week on Greece debt worries

09:39, March 22, 2010      

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The U.S. dollar rose against major currencies on Friday on worries over Greece, which has been one of the major driving factors in currency trading in the week.

The euro bought 1.3536 dollars in late Friday New York trading, about 1.6 percent lower than a week ago. The British pound fell 1.0 percent to 1.5020 dollars.

The greenback edged lower earlier this week after the U.S. Federal Reserve left interest rates unchanged at historically low levels. The central bank decided to maintain the target range for the federal funds rate at 0 to 1/4 percent at its monetary policy meeting Tuesday.

The Fed said it anticipates that economic conditions, including low rates of resource utilization, subdued inflation trends and stable inflation expectations, were likely to warrant exceptionally low levels of the federal funds rate for an extended period.

The Fed said in a statement that U.S. economic activity has continued to strengthen and the labor market has been stabilizing since the last meeting in January. While the pace of economic recovery is likely to be moderate for a time, policymakers of the central bank anticipate a gradual return to higher levels of resource utilization in the context of price stability.

U.S. economic data have provided further evidence for a moderate recovery and stable inflation. The index of industrial production rose by 0.1 percent month-on-month in February as inclement winter weather slowed manufacturing activity.

The homebuilder sentiment index of the National Association of Home Builders fell to 15 in March compared with 17 in February. The index has been almost unchanged at extremely low levels for around a year, suggesting builders see little reason for optimism about the outlook.

U.S. housing starts declined by 5.9 percent in February to an annualized rate of 575,000 units, in line with expectations.

Import prices fell by 0.3 percent in February following a solid gain of 1.3 percent in the previous month. The producer price index (PPI) for February fell 0.6 percent, and the consumer price index (CPI) was flat.

Standard & Poor's said on Tuesday that it affirmed Greece's BBB+ long-term credit rating and removed the country from CreditWatch negative list.

The rating agency said it views the Greek government's fiscal consolidation program as supportive of the ratings at their current level. The news lifted market confidence in Greece, driving the dollar lower.

Safety-haven demand for the greenback picked up later as investors were worried whether the European Union would provide financial aid to Greece.

European finance ministers agreed at a meeting Monday on how to help Greece in its battle to control its finances. But what emerged from the meeting lacked details, which may be decided on by EU leaders at their summit next week.

German Chancellor Angela Merkel reiterated on Wednesday that Germany would not provide financial help to Greece. She also urged stricter rules for the euro, saying it would be possible to exclude a country from the eurozone if it no longer fulfills the conditions over a long term.

Greece warned on Thursday that it would be forced to ask the International Monetary Fund for help if European leaders failed to offer financial aid next week.

Greece might not need money from the EU, but a clear aid plan would thwart speculation, Greek Prime Minister George Papandreou told the European Parliament.

Greece had put forward additional austerity measures in early March, Papandreou said, adding that its tough austerity program "cannot sustain" if the market did not act positively, and that the country had to borrow money at higher rates to refinance its debt.

EU Economic and Monetary Affairs Commissioner Olli Reh called for concrete aid plans for Greece on Friday. He said European leaders must come to a specific political conclusion and clarify the way forward at the summit next week.

European Commission President Jose Manuel Barroso urged European aid for Greece on Friday, saying the commission was ready to propose an instrument for coordinated assistance to Greece.

"Such an instrument would be constituted by a system of coordinated bilateral loans and would be compatible with the no bailout clause and with strict conditionality," said Barroso in a statement.

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