Euro Stalls As Markets Brace For Next Greek Hurdle

LONDON (Dow Jones)--Currency markets breathed a collective sigh of relief after the new cabinet of embattled Greek Prime Minister George Papandreou won a confidence vote late Tuesday but are now braced for the Greek parliamentary vote on crucial austerity measures next week.

Members of parliament must pass stringent measures worth some EUR28 billion before Greece gets a EUR12 billion lifeline from the European Union and International Monetary Fund. Approval must come by June 30 so that Greece is ready for a meeting of euro-zone finance ministers scheduled July 3. Much can happen by then. The confidence vote went along party lines as members of Papandreou's Panhellenic Socialist Movement, better known as PASOK, were eager to stave off early elections but they may not be as quick to say 'yes' to the raft of tough measures given widespread public protests in Greece.

The euro rose to as high as $1.4435 against the dollar after the parliamentary vote late Tuesday, a one-week peak, but has since eased back to a touch below $1.44.

While some prophets of doom see widening protests in Greece as reason to doubt the resolve of Greek MPs, there is still a widespread belief in the market that Greece will pull through this battle.

"The $1.40-$1.50 range will hold and we're in the middle of that now. I'm quite sure Greece will get what it wants. The euro will only plummet if the problem gets so bad that the survival of the euro is at stake. I don't see that happening," said Steven Barrow, currency strategist at Standard Bank.

Analysts at BNP Paribas echoed that view. "It would seem perverse for MPs to vote in favour of the new cabinet last night only to vote down the most important piece of legislation associated with that same cabinet a week later," they said in a research note.

There's no denying though that at this stage the euro is struggling to build on its gains since the Greek confidence vote. It seems the uncertainty dogging the single currency has simply moved on to the next milestone: the austerity package vote, said one trader.

That view was echoed elsewhere. Analysts at Barclays Capital, meanwhile, said that investors appear to be aware of the risks facing the euro, but for now are willing to sell dollars..