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The euro climbed against the dollar and the yen as traders took the opportunity to buy into recent pledges from the European Central Bank to strengthen the permanent rescue fund.
Lacking any further disappointment on the eurozone economic calendar on Monday, the recovery in periphery bonds continued, with the yield on Spain’s benchmark 10-year bond falling 9.1 basis points.
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Italy’s relatively successful sale of €8bn in 12-month bills also helped buoy sentiment towards the single currency.
Against the dollar, the euro climbed 0.6 per cent to $1.2352 and was 0.4 per cent higher versus sterling at ÂŁ0.7866. Against the yen, the euro was up 0.6 per cent to Y96.70.
“The expectations of more monetary easing from the ECB have been giving some support to the euro as the risk of a euro collapse is viewed as less likely by the markets,” said Lars Christensen at Danske Bank.
Some analysts said, however, that in the coming weeks – as traders await details of the ECB’s plans – the euro would be vulnerable to selling on rallies.
The euro’s strongest performance was against the Swedish krona, a currency that gained much traction over recent weeks as investors sought alternative havens to the dollar and yen.
“The euro still looks likely to test the 2000 low at SKr8.05 shortly, although there will be some profit-taking just above this level,” said Alan Ruskin at Deutsche Bank.
That appeared to be the case on Monday and the krona fell 0.9 per cent to SKr8.2509 against the euro.
The yen fell against most currencies after weaker-than-expected Japanese quarterly growth prompted fresh talk of monetary easing.
It eased 0.1 per cent against the dollar to Y78.29, and lost 0.1 per cent to Y122.88 against the pound. Against the Australian dollar it fell 0.4 per cent to Y82.36.
The data showed GDP growth slowed in Japan to 0.3 per cent in the second quarter, leaving the annual growth rate at 1.4 per cent – well short of the 2.3 per cent expected as key export markets suffered downturns and domestic consumption fell to its weakest level in five quarters.
“With both economic and political pressure mounting, the probability of the Ministry of Finance and Bank of Japan intervening in the FX markets has increased,” said Hans Redeker at Morgan Stanley.
