Forex-Euro rallies after rescue package; doubts remain

By Wanfeng Zhou

NEW YORK (BestGrowthStock) – The euro rose broadly on Monday after global policymakers announced a $1 trillion emergency package to stabilize the currency and prevent a sovereign debt crisis in Europe from spreading.

The aid package, hammered out by European Union finance ministers, central bankers and the International Monetary Fund, was the biggest since Group of 20 leaders rolled out support measures after the collapse of Lehman Brothers in 2008.

The euro rebounded from last week’s 14-month low to hit near $1.31 earlier as the plan eased contagion fears, which triggered a global rout in equities and other risky assets last week. It then retreated below $1.29 as concerns remain about the medium-term outlook for the currency.

“There was a sizable relief rally in the euro and a correction in risk assets which have sold off substantially in the second half of last week,” said Robert Lynch, currency strategist at HSBC in New York.

“There are still some questions about the sustainability in the medium term,” he added. “Because you’re simply borrowing more money to meet upcoming obligations and it doesn’t necessarily address the root causes of the problem.”

The European Central Bank immediately began implementing its part of the deal, with euro zone central banks buying government bonds in the open market. See

In midday New York trading, the euro was up 0.8 percent at $1.2852. It had earlier risen as high as $1.3093, according to Reuters data, up from a low of $1.2510 hit on trading platform EBS last week.

Currency speculators increased bets against the euro to a new record high last week, according to data from the Commodity Futures Trading Commission. Bets in favor of the dollar rose to a level strategists say was the highest since the euro’s launch in 1999 (IMM/FX: ).

PRESSURE REMAINS

Uncertainty persisted, however, over whether the package could give the euro lasting support since Greece and other peripheral euro zone countries must tackle fiscal deficits when their growth outlook is deteriorating.

“There are still a lot of debt issues in Europe,” said Brendan McGrath, manager of business solutions at Custom House, a Western Union company, in Victoria, British Columbia. “It seems like people are happy to be taking profits on the euro as it pops up as we’ve seen this morning. There’s still obviously pressure on the euro.”

Ashraf Laidi, chief market strategist in London, said medium-term upside risks for the euro could suggest an extension to $1.3490. Though he said challenges facing Greece’s austerity requirements and doubts about Spain’s short-term debt “suggest a protracted retreat toward $1.23, followed by $1.17” by the third quarter.

Despite Monday’s gains, the euro is still down 10 percent this year, making it the worst performing major currency.

Against the yen, the euro rose 2.7 percent to 120.07, and the dollar was up 1.9 percent at 93.34.

The dollar fell 0.6 percent against a basket of major currencies to 83.934 (.DXY: ). The U.S. Federal Reserve reopened currency swap facilities with other major central banks on Sunday to ease market strains in Europe.

Sterling rose 0.6 percent to $1.4893, helped by a broader recovery in risky assets.

Britain’s opposition Conservatives and Liberal Democrats resumed talks on Monday to reach a deal to govern. The pound hit one-year lows of $1.4475 on Friday on concerns a political stalemate will hamper efforts to tackle the UK’s public deficits.

Stock Today

(Editing by Diane Craft)

Forex-Euro rallies after rescue package; doubts remain