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The euro advanced versus most of its counterparts after European Union leaders agreed on a retooled bailout plan for the region’s most indebted nations.
The 17-nation common currency rose for a second day against the dollar after European leaders agreed last weekend to widen the scope of a rescue fund aimed at resolving the sovereign-debt crisis and cut the cost of loans to Greece.
“The euro has benefited as the preliminary EU summit was positively received,” said Adam Myers, a senior foreign- exchange strategist at Credit Agricole Corporate & Investment Bank in London. “The summit delivered more than the market expected, and that’s a short-term positive for the euro.”
Euro-area leaders negotiated an accord to allow primary- market bond purchases that will offer a lifeline to aid recipients in return for austerity commitments. The agreement broke a deadlock as policy makers sought to extinguish a crisis that has raged for more than a year and forced Greece and Ireland to seek financial aid.
Leaders will allow the facility to spend its full 440 billion-euro ($613 billion) capacity, removing restrictions that would have capped outlays at about 250 billion euros, though it won’t be used to finance bond buybacks for debt-strapped states. A final agreement is slated for a summit on March 24-25.
“The European accord is quite significant and a better outcome than the market was expecting, so that will be a positive for the euro,” said Khoon Goh, head of market economics and strategy at ANZ National Bank Ltd. in Wellington. “With the ECB looking to hike rates in April, the euro could be ripe to break that key $1.40 level in the near term.”
The European Central Bank’s governing council is scheduled to meet on March 17.
The yen declined versus most of its 16 major counterparts as the central bank said it will add 15 trillion yen ($183 billion) to the financial system and increase its asset-purchase program.
The yen fell against the dollar, erasing its earlier advance to a four-month high, as the Bank of Japan pumped record funds into an economy reeling from the nation’s strongest earthquake. The emergency measure represents the Japanese central bank’s first same-day repurchase operations since May, when it added funds to stabilize markets amid the Greek crisis.
BOJ Governor Masaaki Shirakawa and his board also doubled the facility that buys assets from government bonds to exchange- traded funds to 10 trillion yen. Besides the 15 trillion yen of emergency funds deployed, the central bank offered to buy 3 trillion yen of government bonds from lenders in repurchase agreements starting March 16.
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