The euro weakened on Monday and the dollar index inched higher as Greek leaders considered fresh economic measures demanded by international creditors in return for more aid.
The dollar maintained a two-day gain versus the yen amid speculation that the Federal Reserve will avoid easing monetary policy further after the announcement of a stronger-than-forecast jobs report for January.
The euro is down 4.8% over the past three months, the worst performance among the 10 developed-nation currencies. The yen has advanced 3.6% and the dollar has gained 1.3%.
Greek Prime Minister Lucas Papademos reportedly secured a tentative agreement from the three political parties, supporting his interim government on measures demanded by international creditors to release a €130bn (US$171bn) financial rescue package.
The four men agreed in a five-hour meeting to make additional budget cuts this year equal to 1.5% of GDP, according to reports. They also agreed on a framework for bank recapitalizations, for ensuring the viability of auxiliary pension funds and for measures to reduce wage and non-wage costs.
Greece’s efforts to win a second bailout from international creditors have been hanging fire over the past several days.
The European Union (EU), the European Central Bank (ECB) and the International Monetary Fund (IMF) are demanding more reforms from Greece in return for more aid, according to reports. Talks between the political party leaders were due to start again today.
Greek political-party leaders must respond to these demands by 11 am local time on Monday, a spokesman for the biggest party, Pasok, told reporters in Athens.
Greek Finance Minister Evangelos Venizelos told reporters on Feb. 4 that negotiations in Athens for more funding hung “on a razor’s edge.”
Greece is facing a €14.5bn bond payment on March 20 and general elections as soon as April.
Talks between international monitors and Greek officials are running in parallel with discussions among Papademos’s coalition members and Greece’s government and its private creditors.
Meanwhile, the ECB is considering using its bond holdings to bolster Greece’s next rescue program and support efforts to contain the sovereign debt crisis, three euro-region officials said.
In Paris, German Chancellor Angela Merkel and French President Nicolas Sarkozy are due to meet on Monday.
A meeting of euro area ministers is scheduled for Feb. 8.
A formal offer for the debt swap must be made by Feb. 13 to allow all procedures to be completed before the March 20 bond comes due, reports said.
Greece's economy shrank 6% last year, according to the latest IMF estimates, the budget deficit is still close to 10% of GDP and unemployment is around 18%.
Fitch Ratings said that a Greek disorderly default cannot be wholly discounted.
“Fitch expects Greece to undertake an orderly debt restructuring, which would ensure that a payment system is in place,” the credit ratings agency said in a statement today.
“However, a disorderly default, which may include an exit from the euro zone, cannot be wholly discounted,” Fitch said.