The euro bounced a cent higher against the dollar and the pound in morning deals after news the European union and the IMF have finally agreed terms for an emergency Greek bailout - should one be needed.
The euro was one cent higher against the dollar at $1.3373 and against the pound at 90p - having touched a ten month low against the dollar yesterday when European Central Bank president Claude Trichet said he didn't think a deal would be a good idea.
He later retracted his statement and a deal was signed at last night's Brussels summit. According to the agreement the European Union and the IMF will both provide funds in a case of emergency.
Jurgen Michels, analyst at Citigroup, said the deal has eliminated the risk of Greek illiquidity and is therefore good news after the uncertainty of recent weeks.
That said, he said a number of uncertainties remain.
'As the definition of the emergency case is very fuzzy – a situation in which “market financing is insufficient” – and as all euro area member countries will have to agree unanimously on the activation of the facility, the activation of the fund is very uncertain.
He believes the total bailout package is worth €20 billion euro and the euro area states will provide two thirds of the funding.
The emergency aid will be subject to strong conditions and the the interest rate for the loan will not only not contain any subsidy element but it will include ‘risk adequate pricing’ on top of the average euro area interest rate.
