Dawn News

March, 06 2015

Euro jumps on EU summit deal

Facing soaring interest rates, Italy and Spain had blocked an EU growth pact until their partners yielded to their demands to use the rescue funds to buy bonds in the markets. - File photo


TOKYO: The euro surged in Asian trade on Friday after European leaders struck a deal on a $150-billion growth pact to shore up the eurozone, and opened the door to wider use of rescue funds.

The single currency was changing hands at $1.2596, climbing from $1.2449 in morning Tokyo trade, while it also rose against the Japanese currency to 100.19 yen from 98.60 earlier Friday.

The dollar, meanwhile, rose slightly in Asian trade to 79.49 yen from 79.21 earlier Friday. It was quoted at 79.45 in New York on Thursday.

Traders were caught off guard by concrete news out of European Union talks in Brussels, which had widely been expected to yield few substantial measures to tame the eurozone's fiscal woes.

“Since there were low expectations from the EU summit, this news has come as a surprise,” Masafumi Yamamoto, chief forex strategist at Barclays Capital in Tokyo, told Dow Jones Newswires.

The euro spiked as EU president Herman Van Rompuy said the 17-nation eurozone would make a more “flexible” use of the rescue funds “to reassure markets and to get again some stability around the sovereign bonds of our member states.”Such action would be reserved for “well-behaving” nations, he added.

Van Rompuy announced after marathon talks that leaders tasked him and European Commission president Jose Manuel Barroso to present a report in October outlining the long-term strategy.

“It was extremely important that we agreed not on the report itself but on a clear vision about what has to be done,” Van Rompuy said.

“The aim is of course to make the euro an irreversible project.”

Facing soaring interest rates, Italy and Spain had blocked an EU growth pact until their partners yielded to their demands to use the rescue funds to buy bonds in the markets, a stalemate that hurt the euro in morning Asian trade.

The direct recapitalisation of banks could happen after “an effective single supervisory mechanism” is established, with the participation of the European Central Bank, eurozone leaders said in a statement. Conditions would be attached to such direct aid, they said.

The leaders said the bank recapitalisation proposals should be considered “as a matter of urgency” by the end of the year.

Madrid has requested aid for its struggling banks but the country wants to avoid taking in more debt.

The dollar was mostly lower against other Asia-Pacific currencies.

It fell to Sg$1.2700 from Sg$1.2757 on Thursday, to Tw$29.87 from Tw$29.89, to 1,145.00 South Korean won from 1,153.20 won, and to 42.23 Philippine pesos from 42.27 pesos.

It also fell to 9,478.00 Indonesian rupiah from 9,481.00 rupiah, to 31.80 Thai baht from 31.85 baht, and to 56.33 Indian rupees from 57.07 rupees.

The Australian dollar was at US$1.0176 from US$1.0117, while the Chinese yuan traded flat at 12.49 yen.

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