Euro held onto gains in the Europe session after a 1.2 percent spike against the dollar in late Asian trading this morning. This was in reaction to news from the EU Summit where European leaders agreed on a deal that would allow struggling banks to be recapitalised directly out of the ESM bailout fund (European Stability Mechanism) .
This is positive for Spanish and Italian banks which can be bailed out by funds given directly to them from the ESM, and avoid adding to government debt. Also agreed upon was scrapping credit seniority for bailout loans to Spanish banks. This should encourage the private sector to invest in Spain’s sovereign debt and reduce the Spanish government’s borrowing costs in the short to medium term.
EU Summit news dominated the markets so euro zone fundamental data released this morning had little effect on the euro. German retail sales fell more than expected by 0.3 percent and CPI estimate was unchanged at 2.4 percent.
EURUSD opened the European session at 1.2592 after surging in late Asian trading from 1.2431 to 1.2626. The EU Summit has made progress but the single currency remains vulnerable and such a huge rally may not last long given that there is still tremendous uncertainty in the euro zone.
GBPUSD opened at 1.5607 and spiked early in the session to 1.5678 before stabilizing. Sterling is supported by the ESM news for now but could be weighed down by the fact that the Bank of England may adopt further QE in its next policy meeting.
EURJPY gained almost 2 percent on the day, hitting a high of 100.51 in the European trade as risk appetite lessened demand for the safe haven yen. USDJPY peaked at 79.73 in Europe after rising from an early Asian session low of 79.12.