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 At the end of a marathon night of talks, euro zone leaders made
Greece surrender much of its sovereignty to outside supervision in
return for agreeing to talks on an 86 billion euro bailout.
But that is subject to parliamentary approval and the bailout will
only happen if Greek Prime Minister Alexis Tsipras can meet a tight
timetable for enacting a series of unpopular reforms.
The single currency, which had initially risen on the news, reversed
its gains to trade down 1 percent on the day at $1.1050 <EUR=>.
"This is not over yet, in fact it might be far from over," said
Anthony Lawler, a portfolio manager who invests in hedge funds at
investment firm GAM in London. "It is not at all certain that the
Greek government will accept what is proposed."
"Our medium-term expectation is that the euro continues to weaken
but you should see some significant volatility in the near term,"
Lawler added. "We believe the Fed will raise rates before the end of
the year ... which on the margin we believe will continue to help
the dollar."
Investors said the Greek deal had made it more likely that the U.S.
Federal Reserve, which has previously said it would look at the
Greek crisis when considering monetary policy, would raise interest
rates during 2015.
For that reason, the dollar rallied across the board, hitting an
11-day high against the yen at 123.495, which is traditionally
bought by investors at times of uncertainty.
Against a basket of major currencies, the greenback was 0.4 percent
higher on the day at 96.429.
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"(The deal) represents a removal of a potential restraint on Fed
tightening plans, so there is a dollar positive aspect to it," said
Ian Gunner, portfolio manager of the Altana Hard Currency Fund in
London. "The big twin uncertainties over the past few months have
been Greece and Fed tightening."
Federal Reserve Chair Janet Yellen will give a semi-annual testimony
to U.S. Congress later in the week, which will be closely watched
for clues on when interest rates might start to increase. Last
Friday, Yellen said she expected the Fed to raise interest rates at
some point this year.
Boston Fed President Eric Rosengren, one of the Fed's most dovish
officials, said on Friday that September may be the right time to
hike rates if the U.S. economy continued to improve.
(Reporting By Jemima Kelly; Editing by Toby Chopra)
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