Euro has continued its positive rally as economy provides support. The refinancing rate has been kept stable at 0.75% and this decision has been taken unanimously by the members of European Central Bank (ECB). The currency rose 1.2% in the last trading session and closed at $1.32 against the US Dollar.
The above picture shows the movement of the currency in the past week. It has been gaining strength and there’s a peak rise in the last 3-4 trading sessions. There has been a reduction in the expectation of the rate cuts in the future as well; this gave a boost to the confidence in the currency. The currency also gained from the news that Spain and Italy posted successful numbers in sale of bonds in their auction held this week.
Spain’s 10 year government bond received higher demand and it sold at a lower yield cost compared to the previous year. The yield cost or the borrowing cost was down at 5.65% lower than the previous year rate of 6.65% and also below the average rate of 5.95% in 2012. This rate is the lowest since March 2012. In a similar auction held, Italy sold its bond at a rate that is lowest in the past three years. The next auction in Italy is due today. the decreased borrowing cost of bonds also signifies that there is a growth path ahead for the European economy
However the currency is to pass a serious issue ahead today or early next week when German chancellor Angela Merkel, Ireland’s Enda Kenny and other leaders of the European People’s party are set to meet in Cyprus to decide on the stimulus package of $ 15 billion that it has demanded. The chancellor and other leaders have rejected the amount but Cyprus has told that it had enough cash to run till March this year. if EU decides on the package, there would be questions on the percentage to be contributed by each countries towards this; which might have an effect on the country’s currency.
Yen is said to gain against Euro for the first time in the year as prime minister Abe, announced $ 116 billion stimulus package approved by the cabinet for reviving the country from recession, it is said to allocate funds to build infrastructure and uplift the manufacturing sector in the country. This would increase the currency value against the US Dollar and Euro. It is currently trading at ¥ 88.91 against Dollar and ¥ 118.01 against Euro.
On the other hand Great Britain’s pound rose 0.6% against the dollar and stood at $1.61 close during the last trading session. This was after the Bank of England kept the interest rates on hold and announced that no further monetary easing plans are expected in the coming months.
ECB president, Mario Draghi, is confident that 2013, will be a positive year for Europe and will be set in the growth path, wherein the currency is believed to offset it losses faced in the previous year.
By Sinjhuja Srinivasan