Euro Falls as Investors Refocus on Eurozone Economy

        By James Ramage
        The euro tumbled against the dollar and the yen on Monday as the prospect of a resolution to the Greek crisis caused investors to shift their attention to the relative weakness of the eurozone economy.
        The euro plummeted 1.4% against the dollar to $1.1008, on pace for its lowest close since May 29. The common currency dropped 0.8% versus the yen, to Y135.89.
        Bearish euro investors sold the common currency after Greek Prime Minister Alexis Tsipras and international creditors reached an agreement in principle on a new bailout for the embattled country early Monday morning. While signs of a deal reduced concerns that Greece would exit the eurozone and roil markets over the short term, the potential third bailout refocused investors on the eurozone's slow economic recovery, punctuated by stagnant inflation, tepid growth and relatively high unemployment.
        By comparison, improving U.S. economic data and the prospects of the Federal Reserve's first increase in interest rates in nine years are likely to lift the dollar as markets calm, currency strategists say. Higher U.S. borrowing costs makes the greenback more attractive, as it boosts returns on assets denominated in the currency.
        From May 2014 through mid-March, investors had poured into wagers that the euro would fall as the European Central Bank eased monetary policy and launched a massive bond-buying program in an effort to lift growth and consumer prices. The euro lost almost one-quarter of its value over the span.
        But modestly improving economic data and growing uncertainty over Greece's debt crisis halted the currency's decline as investors adjusted their trades to fit the euro's indefinite shorter-term prospects.
        "To the extent that the passage of this immediate risk allows the market room to start building currency positions based more on conventional [economic data], you may see the euro fall more against the dollar," said Shahab Jalinoos, currency research analyst at Credit Suisse. "And the market is likely to be more confident in holding those positions."
        In other trade, the dollar strengthened 0.5% versus the Japanese currency to Y123.43, a two-week high.
        Write to James Ramage at james.ramage@wsj.com
        (END) Dow Jones Newswires

        July 13, 2015 15:32 ET (19:32 GMT)

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