British pound recovers after Bank of England’s July policy minutes By Sue Chang and Deborah Levine, MarketWatch SAN FRANCISCO (MarketWatch) — The euro extended gains against the U.S. dollar Wednesday on mounting optimism about progress in resolving Europe’s debt troubles, with the greenback pressured as traders remain skittish over the status of debt talks in Washington. French President Nicolas Sarkozy and German Chancellor Angela Merkel are scheduled to meet in Berlin Wednesday, ahead of a key euro-zone summit in Brussels on Thursday. The euro EURUSD +0.35% rose to $1.4208 from $1.4125 in late North American trading on Tuesday. It touched $1.4239 during European trading hours. See real-time currency quotes and tools. ”Dealers felt assured that [a European Union] summit on Thursday would deliver some sort of lasting resolve for the Greek debt situation,” said Andrew Wilkinson, senior market analyst at Interactive Brokers, in a note. The dollar index DXY -0.33% , which tracks the U.S. unit’s performance against a basket of six currencies, fell to 74.855 compared to 75.210 Tuesday. Against the Japanese yen, the dollar USDJPY -0.55% fell to ¥78.79 from ¥79.25 late Tuesday. President Barack Obama on Tuesday noted “some progress” in talks with lawmakers about raising the U.S. debt ceiling and praised a new plan from the so-called “Gang of Six” in the Senate that would cut $3.7 trillion from deficits over 10 years. Read more on Obama's comments on debt plan. ‘Recipe for success’ Analysts also said a Bloomberg news report helped boost the euro. Citing unidentified sources, the report said officials are weighing proposals that include credit lines designed to prevent the spread of contagion to weaker euro-zone economies and allowing the 440 billion euro ($626 billion) European Financial Stability Facility to provide loans to recapitalize banks. The yields on Greek, Italian and Spanish bonds fell on Wednesday, signalling decreasing credit worries. Referring to the Thursday summit, analysts at Societe Generale said: “The recipe for success ... still involves lower rates and longer maturities for the afflicted countries, secondary market support to stop the steady step-by-step rise in peripheral yields after each mini-crisis, and perhaps most important of all, a united front of support for whatever is agreed, from the euro-zone leaders, the ECB [European Central Bank] and the Greeks.” However, they also note “many people have realized that the EFSF being a triple-A vehicle for buying distressed sovereign debt has uncanny parallels to Fannie/Freddie” — referring to Fannie Mae FNMA +0.41% and Freddie Mac FMCC +0.42% , the U.S. government-supported mortgage-buying agencies that collapsed at the beginning of the financial crisis. The developments on both sides of the Atlantic helped lift equities and other risk-correlated assets and currencies, while weighing somewhat on the greenback and Treasury bonds, said strategists. Read stock market snapshot. Still, such moves could be short-lived. Adrian Schmidt, currency strategist at Lloyds Bank in London, cited “a very uncertain outlook.” Bank of England minutes The British pound GBPUSD +0.18% bought $1.6147, up slightly $1.6112 late Tuesday. Sterling had weakened in Asian trading on fears the minutes of the Bank of England’s July 7 monetary-policy meeting would show more support for a potential expansion of the central bank’s quantitative-easing program, said Adam Cole, global head of foreign-exchange strategy at RBC Capital Markets in London. Instead, a reference to asset purchases was dropped altogether, he noted. As expected, committee members again voted 7-2 to leave the key lending rate unchanged at 0.5% and remained 8-1 in favor of leaving the size of its asset-purchase program, centerpiece of its quantitative-easing strategy, unchanged at £200 billion. The Australian dollar AUDUSD -0.04% changed hands at $1.0744, compared with $1.0721 Tuesday. Sue Chang is a MarketWatch reporter in San Francisco. William Watts contributed to this report.

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