NEWYORK, Mar. 4 -- The euro traded near a two-week high against the dollar after Greece announced deeper spending cuts and tax increases, easing concerns the European Union's biggest budget gap will derail a regional recovery.
The 16-nation euro may rise for a third day against the yen before a report today that is forecast to show the euro- zone's economy grew for a third quarter. The dollar traded near the weakest level since December against the yen on bets the Federal Reserve will keep its key policy rate near zero to sustain growth in the world's largest economy.
"The Greek deal will soothe pessimism over the euro," said Takeshi Makita, senior economist in Tokyo at Japan Research Institute Ltd., a unit of Sumitomo Mitsui Financial Group Inc., Japan's third-largest banking group. "It will weaken heavy speculative selling of the euro."
The euro traded at $1.3704 at 8:39 a.m. in Tokyo from $1.3697 in New York yesterday when it reached $1.3736, the strongest since Feb. 17. It bought 121.31 yen from 121.17 yesterday. The dollar changed hands 88.52 yen from 88.47 yesterday, when it reached 88.32, the lowest since Dec. 14.
Ten-year bond yields in Greece fell to the lowest in more than two weeks after the nation's Prime Minister George Papandreou announced additional deficit-cutting measures worth 4.8 billion euros ($6.6 billion).
The Greek government's additional deficit-cutting measures announced yesterday are "consistent" with Moody's Investors Service's current A2 rating with a negative outlook of the country's debt, the rating company said.
"These new measures are a clear manifestation of the government's resolve to regain control of public finances," Sarah Carlson, Moody's lead analyst for Greece, said in an e- mailed statement yesterday.
Europe's common currency has fallen 4.3 percent against the dollar this year amid concern Greece's struggle to narrow its deficit will hamper the region's recovery.
Gross domestic product in the 16-nation euro region rose 0.1 percent in the fourth quarter following a 0.1 percent gain in the previous period, according to the median estimate of 32 economists surveyed by Bloomberg News before today's data.
The dollar may fall for a third day against the yen on speculation job losses in the U.S. will encourage the Fed to keep borrowing costs unchanged.
Interest-rate futures on the Chicago Board of Trade yesterday showed a 39 percent chance the Fed will keep its target lending rate at between zero and 0.25 percent by its November meeting, compared with 19 percent odds a month earlier.
U.S. companies cut 65,000 jobs in February after trimming 20,000 the previous month, according to a Bloomberg News survey before the Labor Department report tomorrow.
While payroll reductions slowed in most areas, "hiring plans still remained generally soft," and pressures on employers to raise wages were "minimal," the Fed said in its Beige Book business survey published yesterday.
"As long as job losses continue, the Fed can't start hiking interest rates," said Kazutoshi Yasuda, general manager of the markets department in Tokyo at FX Prime Corp., a foreign-exchange unit of Japanese trading house Itochu Corp. "This rate view will keep a lid on the dollar."