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Early Friday morning leaders of the top nations in Europe stepped out of the summit with surprising news. The Eurozone summit shocked investors and immediately caused the euro to drastically improve. As of mid-day Friday, the euro was currently on track to make the largest one-day gain against the dollar for over eight months.
European leaders decided before dawn on Friday morning to loan bailout money to the banks and not to the government. This makes it easier for governments like Spain to recover and keeps the private sector’s debts from piling onto the sovereign debt. Leaders in the Eurozone want to avoid all of the issues they have had with the bailout in Greece. To reduce confusion and red tape, future bailout repayments will be governed by the European Central Bank instead of the current motley of 17 different banks. In addition, the Eurozone has pledged to buy up some of the bonds from debt-ridden countries. By doing this, the Eurozone can help ease the financial strain on countries like Greece without holding them to the stringent austerity measures that they have in the past. After the results of the summit were released, German Chancellor Angela Merkel chose not to comment.
Will the Euro Continue to Rise?
Although many investors are reinvigorated by the results of the summit, some analysts believe that the new regulations are just a temporary Band-Aid. With this in mind, three-month forecasts for the euro/dollar are steady at $1.20.
After the announcement on Friday morning, the euro reached a level of $1.2692 against the dollar. By mid-day, it fell back to a level of $1.2646 which still marks a 1.7 percent increase. Even with all of the gains on Friday, the euro is still expected to record a loss of 5.2 percent for this quarter.
Bond Yields Fall
Over in Spain and Italy, yields on 10-year bonds fell after news from the summit came out. The news results also prompted Irish government drop to fall as well. Compared to the yen, the euro managed to reach a one-week high of 101.39. This also marks a large one-day gain for the euro against the yen. Since March of 2011, today’s rise of 2.4 percent is the highest gain.
In other positive news out of Europe, the euro rose against the sterling by 0.8 percent. Analysts believe that the euro may stay up against the pound until the end of this month.
Dollar Rises Today Against the Yen
In today’s trading, the dollar still managed to rise 0.6 percent against the yen. It reached 79.89 yen, but this rise was not enough. The dollar appears to be on track for a loss of 3.5 percent this quarter. In other trading, the dollar did not perform as well. As a global currency, the dollar is often believed to be a safe haven when times are rough. After news came out from the European Summit, the dollar fell against several Asian currencies and the euro as investors sought out riskier investment.
Australian and New Zealand Dollar Gain
Today’s trading session marked the rise in the value of the Australian dollar and the New Zealand dollar. The Australian dollar rose to $1.0229. This marks the strongest level that it has traded at since May and is a 1.9 percent increase. The New Zealand dollar and rose 1.6 percent to reach a value of $0.8003.
Latin American Currencies Rally
Brazil’s government recently decided to help increase inflows of the dollar. This move was greeted positively by investors and the real gained 3.3 percent during today’s trading. It ended up closing out the day at 2.009 per dollar. The central bank in Brazil chose to sell 60,000 currency swaps and relaxed all of their rules on prepaying exports. The Brazilian real still stand 7 percent lower for the current year.
In the other parts of Latin America, other currencies managed to gain on Friday. The Chilean Peso gained 1.7 percent since Thursday to settle down at 500.90 by the end of trading. Meanwhile, the Mexican peso rose 1.9 percent against the dollar to reach 13.355. This has been the strongest level for the Mexican peso since the beginning of May.