Although it is way too early to be certain, the foreign exchange markets appear to be responding positively to the plans to shore up the banking system announced by EU leaders earlier today. Since many European banks funded some of their balance sheets in dollars, a fall in the dollar would also offer some direct stress relief/
The euro rose the most in three weeks against the dollar and the yen after European leaders agreed to guarantee bank borrowing and prevent big lenders from going under.
The currency advanced as leaders of the 15 countries using the euro announced measures including a pledge to guarantee new bank debt until the end of 2009; permission for governments to shore up banks by buying preferred shares; and a commitment to recapitalize any “systemically” critical banks in distress.
“We are looking at the ladder to recovery,” said Alex Sinton, a senior currency dealer at ANZ National Bank Ltd. in Auckland. “The market believes that come Monday open European time there will be something on the table that is supportive for the euro.”
The euro rose 1.1 percent, the most since Sept. 22, to $1.3554 at 8:19 a.m. in Sydney, from $1.3408 late in New York on Oct. 10. It advanced 1.4 percent, the most since Sept. 19, to 136.85 yen, from 134.96 on Oct. 10.