The euro rebounded as an ongoing summit of world leaders drove rising expectations of more coordinated efforts to provide support for Europe’s ailing economies. The common currency gained as leaders from the Group of 20 advanced and developing economies discussed plans to strengthen banks and stimulate global growth at a summit in Los Cabos, Mexico.
Also helping the euro, the Federal Reserve began a two-day monetary policy meeting in Washington, with traders paring bets against the euro throughout the day in anticipation of more action from the U.S. central bank. With the U.S. economy slowing in recent months and unemployment remaining above 8%, markets increasingly expect the Fed to extend its program to target lower long-term interest rates, known as Operation Twist, and to possibly signal more aggressive plans jumpstart the economy. Another possible Fed move, so-called quantitative easing, would send a flood of dollars into the market, likely bolstering the euro and other higher-yielding currencies, such as the Australian dollar. Fed Chairman Ben Bernanke is scheduled to give a press conference Wednesday after the central bank wraps up its meeting.
Currency market sentiment improved as European leaders at the G-20 summit pledged to begin the process of integrating their banking system, laying the groundwork to guarantee deposits throughout the region and use common funds to recapitalize failing banks. Spain’s struggle to shore up its weakest banks has fueled concern that the country may be the next European economy to request a bailout from the European Union. Even ahead of the G-20 developments Tuesday, reports that Greece appeared close to forming a three-party coalition government that would back its European-led rescue program relieved market stress. Spanish bond yields retreated after touching a record high Monday, and stocks rallied.
The EUR was at $1.2684 from $1.2577 late Monday. The USD was at Y78.94 from Y79.12 and at CHF0.9466 from CHF0.9551. The AUD rose to $1.0190 from $1.0123. The GBP was at $1.5724 from $1.5664.
EasyForexNews Research Team