Euro gains vs dollar on Greek austerity deal

The euro hit a two-month high against the dollar on Thursday, buoyed by news that Greece had clinched a deal needed to avoid default, though some traders said the central bank could still cut interest rates next month.

Greece’s agreement to adopt new austerity measures, confirmed by European Central Bank President Mario Draghi, should pave the way for a 130 billion euro ($172 billion) aid package for the troubled country.

That kept the euro near a two-month high of $1.3312, with the currency last changing hands at $1.3295, up 0.3 percent. It also hit a two-month high at 102.81 yen.

Earlier, the ECB held interest rates at 1 percent as expected, but Draghi warned that the economic outlook remained uncertain, a sign that a rate cut may be on the table in March.

“Given the euro zone’s woes, markets see another rate cut as likely,” said Steven Butler, head of currency trading at Scotia Capital in Toronto. But “a Greek deal may provide just enough positive sentiment, and the market is still short the euro.”

Elsewhere, the dollar hit a session peak of 77.34 yen , up 0.3 percent and boosted by data showing first-time U.S. jobless claims fell unexpectedly in the latest week.

Sterling was up 0.3 percent at $1.5860 after the Bank of England met expectations by announcing it would inject another 50 billion pounds into the UK economy.

Traders said the euro remained vulnerable despite its gains, as uncertainties about the euro zone economy and the health of other heavily indebted countries would weigh on sentiment.

Some said another round of ECB low-interest, three-year loans to euro zone banks due at the end of the month was a reminder of just how fragile the banking system still is.

“I suspect this risk rally may have a little further to run – until people realise that the expansion of the ECB’s balance sheet is not a positive and the debt dynamics of Greece are not sustainable,” said Jeremy Stretch, currency strategist at CIBC.