INTERNATIONAL. The euro surged the most this year against the dollar after European leaders eased terms on loans to Spanish banks, taking a step to resolve the region’s debt crisis and boosting demand for the shared currency.
The 17-nation euro posted the biggest gain in three weeks versus the yen as European Union President Herman Van Rompuy said officials meeting in Brussels agreed to drop the condition that emergency loans to Spanish banks give their governments preferred creditor status.
The Australian and New Zealand dollars advanced as stock gains boosted demand for higher- yielding assets.
The European Union has “addressed the issues on the seniority of Spanish loans,” said Roy Teo, a currency strategist in Singapore at ABN Amro Private Bank. “That should help push down Spanish yields. It’s positive for the euro.”
The euro advanced 1% to US$1.2571 at 9:01 a.m. London time after rising as much as 1.5%, the biggest intraday gain since November 30. The currency jumped 1.2% to 100.09 yen after climbing 1.7%, the most since June 6. The yen weakened 0.3% to 79.67 per dollar.
EU leaders meet in Brussels today for a second day of talks to discuss measures to stem a debt crisis that’s spurred five euro members to seek international bailouts. Earlier this month, Spain agreed to take a rescue loan of as much as 100 billion euros to help recapitalize its banking sector.
Spain’s 10-year bond yield dropped 39 basis points to 6.56% after falling as much as 55 basis points, the biggest decline since December 5. Italy’s 10-year yield fell as much as 42 basis points to 5.78%.
The euro has weakened 9.5% versus the yen since March 31, and 5.8% against the dollar, the biggest quarterly declines against both currencies since September.
Euro-area finance ministers will enact today’s deal on loans to Spanish banks at a meeting on July 9, Rompuy said, calling the accord a “breakthrough.”
When policy makers said “they would inject bailout funds into the Spanish banks, bond holders were already worried that in an event of any haircut or default, the money from Europe’s bailout fund will have a seniority status compared to private bond holders,” ABN’s Teo said. “The fact that right now they are renouncing the seniority status means private bond holders will have similar, equal weighting in that sense. So that should reduce their investors’ premium for investing in Spanish debt.”
The Dollar Index (DXY), which Intercontinental Exchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, dropped 0.8% to 82.07.
The Australian dollar extended a fourth weekly gain as the Stoxx Europe 600 Index (SXXP) of shares climbed 1.7% and the MSCI Asia Pacific Index rose 1.9%.
Australia’s currency appreciated 1.2% to US$1.0169, set for a 1.1% gain this week. New Zealand’s dollar rose 1.2% to 79.81 U.S. cents.
The euro may face resistance at its June 18 high of US$1.2748 according to data compiled by Bloomberg based on trading patterns. Resistance refers to an area where sell orders may be clustered. The stronger the resistance, the more buying is needed to rise through that level.