The Euro surged 1.1% in its biggest daily jump in eight months. Markets now shift focus to key data releases.
The Euro shot up more than 1% earlier today, on news that European leaders have agreed that Euro zone banks could be recapitalised without adding to government debt. This did much to allay concerns about growing lending pressures in Spain and Italy.
Dollar-based oil, copper and gold recovered as the Dollar retreated following the Euro’s steep rebound.
While the finer details of the agreement are yet to be disclosed, the Euro zone members had agreed to emergency action in order to lower the borrowing costs of Spain and Italy. They reasoned that the Euro area rescue funds could be used to stabilise bond markets without forcing countries that comply with EU budget rules. They also agreed to create a single supervisory body for the Euro bloc’s banks.
Euro area finance ministers will enact the final deal on loans to Spanish banks at a meeting on July 9th.
Both Spain and Italy had been threatened by market pressure which pushed their borrowing costs to unsustainable levels. They blocked a 120 billion Euro ($149 billion) growth package at the start of the two day EU summit yesterday, in order to demand urgent action to calm their financial woes.
The EU Leaders however did not place stress on the possibility of Euro bonds. Europe’s paymaster, Germany, staunchly opposes the creation of common Euro bonds.
While the Dollar retreated against a basket of currencies, the Euro was set for its biggest daily jump in eight months and was at $1.2568 earlier today. The Euro had jumped 1.2% to 100.08 Yen after earlier falling as much as 0.3%. The Yen fetched 79.43 Yen per Dollar.
In Japan, government reports today had shown that its industrial production had slid 3.1% in May from April. This was the biggest decline since March 2011. Japan’s consumer prices declined 0.1% in May.
The Australian and New Zealand Dollars advanced as Asian stocks rose, which boosted demand for higher yielding assets. The Aussie was up 1.5% to $1.0192 and the Kiwi rallied 1.3% to 79.84 U.S. cents.
Analysts now expect that the markets will shift their focus to other key data. The monthly U.S. jobs report is due next week and the official China PMI due over the weekend, with the PMI expected to show that activity at China’s factories fell to a seven month low this month.
Data released yesterday had shown that unemployment climbed in June for the fourth month this year in Germany, the Euro currency bloc’s biggest economy. A report from the EU’s statistics office is due for release on July 2nd and is expected to show that the jobless rate in the 17 nation Euro zone was near 11.1% in May.
Stay tuned for further updates, trade safe!
Erik