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Euro Strengthens On China Easing And Greek Bailout Hopes

2/20/2012 7:26 AM ET

The euro advanced on Monday as equities rallied and commodities climbed on renewed sentiment generated by the Chinese central bank move and lingering hopes that the Troika will finally approve the bailout package for Greece.

Over the weekend, China lowered the reserve requirement of banks to boost lending. The reduction ensures the release of 400 billion yuan worth of capital into the market, helping to ease short-term credit crunch.

The Eurogroup is set to meet later today in Brussels to discuss about the approval for a second bailout package for Greece, which is facing the threat of a disorderly default if the deal does not materialize.

Further, the Chinese Vice-President Xi Jinping has reiterated his country's commitment to support the euro and the Eurozone, insisting that Beijing attaches great importance to the status of the 17-member single currency bloc.

Thus far, the U.K. FTSE 100 index advanced 0.78 percent, Germany's DAX climbed 1.44 percent and France's CAC-40 index rose to 0.77 percent.

The common currency climbed to a 1-week high of 1.3276 against the US dollar around 6:35 am ET. The next barrier for the pair could be its 100-day SMA at 1.3315.

Against the pound, the euro rose to a 5-day high of 0.8367 and the pair is likely to cross the key 0.84 resistance in the near-term.

Mortgage lending in the United Kingdom decreased from the previous month in January, preliminary data from a survey by the Council of Mortgage Lenders showed today.

The gross value of mortgage lending declined 14 percent to GBP 10.5 billion in January from GBP 12.2 billion in December. Year-on-year, gross mortgage lending increased 10 percent during the month, marking the fifth consecutive yearly growth.

The single currency also advanced to as high as 105.60 against the yen and near the 1.21 level against the Swiss franc before holding steady around 6:35 am ET.

Bank of Japan Governor Masaaki Shirakawa said the central bank will continue powerful monetary easing until 1 percent inflation is foreseen.

At the same time, the Standard and Poor's retained sovereign ratings of Japan with "negative" outlook. It affirmed Japan's long- and short-term sovereign credit ratings at 'AA-' and 'A-1+', respectively.

Japan reported a record trade deficit of 1.48 trillion yen in January, as imports climbed at a faster rate of 9.8 percent year-over-year, while exports fell 9.3 percent. The month's data was, however, impacted by the timing of the Chinese New Year holiday, which fell in January this year.

Japan's leading index, that indicates the direction of the economy in the months ahead, rose to 94 from 93.7 in November, the Cabinet Office showed today. Meanwhile, the coincident index reading was revised up to 93.6 from 93.2.

by RTT Staff Writer

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