Greece hopes keep euro near 3-week high vs stalling dollar

Tue Apr 28, 2015 4:07am EDT

LONDON | BY JEMIMA KELLY

(Reuters) - The euro hovered near a three-week peak on Tuesday, boosted by renewed hopes that cash-strapped Greece could secure extra funding and as the dollar remained weak ahead of a U.S. Federal Reserve meeting that starts later in the day.

The euro rose late on Monday on news that Greek Prime Minister Alexis Tsipras had reshuffled his team handling talks with European and IMF lenders. The move was widely seen as an effort to reduce embattled Finance Minister Yanis Varoufakis's role in the negotiations.

Greek stocks and bonds rallied in response, and the euro reached $1.0927, its strongest since April 7. On Tuesday the single currency was trading flat at $1.0891.

Losses against the euro helped keep the dollar close to a three-week low against a basket of currencies at 96.705. Later in the day U.S. data could give the greenback some direction, before a closely watched Fed statement on Wednesday that could provide a steer on when interest rates will rise.

"There are residual concerns about the strength of the economy in the U.S. That's the big medium-term thing at the moment that has caused the dollar rally to take a bit of a break," said Hamish Pepper, a currency strategist at Barclays bank in London.

Pepper added that the news of the Greek government's reshuffle had helped reduce some of the risk premium attached to the euro, in turn boosting the single currency.

Greece faces a Eurogroup meeting of euro zone finance ministers on May 11, a day before it must pay 700 million euros to the IMF.

"Varoufakis's hard-ball tactics have been a source of huge frustration for the Brussels group of international creditors," said Ray Attrill, global co-head of FX strategy at NAB.

"The appointment of a more conventional negotiator, more familiar with the European bureaucracy, has stoked optimism that a deal will be reached before large payments are due in May."

The dollar was little changed against the yen at 119.01, having briefly touched 119.44 on Monday in a knee-jerk reaction to Fitch's well-anticipated downgrading of Japan's credit rating by one notch to A.

Later in the day U.S. consumer confidence and housing data will shed more light on the state of the U.S. economy, which is yet to gain full momentum and has seen market expectations for a Fed rate hike in June all but evaporate.

(Additional reporting by Ian Chua in Sydney and Shinichi Saoshiro in Tokyo; Editing by Hugh Lawson)