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Greek Cabinet Approves Debt Deal, Sending Euro to New High Against Dollar

Greek Cabinet Approves Debt Deal, Sending Euro to New High Against Dollar

The decision by Greece's cabinet to approve the details of a new €100 billion debt write-down as part of a multi-billion euro rescue plan the country is looking for from international creditors helped push the euro to new highs against the dollar and yen.

The Wall Street Journal

The decision by Greece's cabinet to approve the details of a new €100 billion debt write-down as part of a multi-billion euro rescue plan the country is looking for from international creditors helped push the euro to new highs against the dollar and yen.

The Wall Street Journal reports cabinet ministers agreed to sign off on the deal after meeting for just over an hour, leading to an expected formal announcement on the debt deal. One senior government official who was at the meeting told the news source that the terms, the procedure and the deal had all been approved.

The approval comes after finance ministers in the euro zone approved a new €130 billion bailout for Greece, a move that reportedly hinged on Greece agreeing to a restructuring plan, according to the Journal. Greece lawmakers are currently in the midst of seeking new cutbacks, including pension cuts, decreases in defense and healthcare spending and a lowering of the minimum wage.

"The package is no guarantee that the problems in Greece will be solved," Dutch Finance Minister Jan Kees de Jager told his own parliament in a letter, according to Reuters. "Greece will have to take extensive measures and show that it implements the necessary reforms," added De Jager, who has expressed scepticism of Athens' commitment to curb its finances.

Still, Greek Finance Minister Evangelos Venizelos told lawmakers that the approval of the debt swap "will allow us to start getting out of the vortex," before adding that they must continue to "work, work, work" to ensure that the debt crisis is handled properly.

With news of the Greek approval of the debt swap, coupled with better-than-anticipated German business sentiment in February, the euro gained to $1.3474 against the dollar, its highest level since December 8, according to the Journal.

Bloomberg reports the yen fell to a three-month low against the euro on February 24, with foreign exchange volatility dropping to its lowest level since August 2008. According to the news source, indications of global growth have spurred demand for higher-yielding currencies.

Nick Bennenbroek, the head of currency strategy at Wells Fargo & Co. in New York, told the news source that the overall outlook appears positive in terms of foreign exchange rates and markets.

"You could put the decline in the yen and the gain in some of the European currencies in the context of a more constructive mood on the market and positive attitudes about recent developments," Bennenbroek explained to Bloomberg. "Developments are continuing to move in an overall favorable direction and that’s why we’re seeing the markets behaving as they are."

Apart from the euro and yen, the British pound rose 0.8 percent to $1.5876, breaking a losing streak of four consecutive days against the common currency, the news source said. The dip in volatility is a positive sign for foreign exchange markets in 2012, as it makes investments in currencies with higher benchmark rates more appealing due to lower risks, according to Bloomberg.

"We are moving gradually into a risk-taking environment," Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce in London, told the news provider. "The policy stance of the Japanese government, low volatility and signs of economic recovery are putting the yen on the defensive."

Such positive indications are the latest for the U.S. economy overall, as the Dow Jones Industrial Average is nearing the 13,000 mark for the first time since the beginning of the financial crisis four years ago, according to reports.