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The euro recovered from an eight-month low against the dollar this week on tentative hopes that eurozone leaders could agree on a plan to address the region’s debt crisis.
Sentiment towards the single currency improved as the German parliament approved plans to expand the size and scope of the European financial stability facility, the eurozone’s rescue fund, on Thursday.
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The euro, which hit a low of $1.3361 against the dollar on Monday, rallied but still finished the week 0.5 per cent lower at $1.3430 against the dollar.
Analysts remained sceptical that the single currency could make significant progress in the absence of a concrete strategy from European politicians to deal with peripheral eurozone debt problems and to bolster the region’s financial system.
Steve Barrow at Standard Bank said all that was happening was that investors were cutting their bets against further sharp losses in the euro, which was hardly the basis for a sustained rally in the single currency.
“Markets remain in limbo,” he said. “For a rally to happen eurozone officials have to come up with the goods. But while we feel the risks are that their plans will receive a warm initial reaction by the market, this support will soon fade.”
The single currency also eased 0.1 per cent to Y103.21 against the yen on the week, was 0.6 per cent weaker at SFr1.2145 against the Swiss franc and dropped 1.1 per cent to £0.8635 against the pound.
Sterling, which also rose 0.5 per cent to $1.5544 against the dollar on the week, received support as an official from the Swiss National Bank said the central bank would be adding the currency to its reserves over the next year.
Meanwhile the dollar found support as concerns over global growth and the eurozone debt crisis weighed on risk appetite and pushed investors to the relative safety of the US dollar.
The dollar rose 0.3 per cent to Y76.82 against the yen on the week, but advanced more strongly against commodity-linked currencies
The Australian dollar fell 0.9 per cent to a 10-month low of $0.9688 against the US dollar over the week, while the Canadian dollar dropped 1.7 per cent to a one-year trough of C$1.0456.
The New Zealand dollar also suffered, dropping 1.8 per cent to a six-month low of $0.7610 against the US dollar over the week after the country lost its triple A credit rating.
Rating agencies Fitch and Standard & Poor’s downgraded New Zealand by one notch, citing concerns over the high level of the country’s external debt.
