Euro surges as leaders back new bailout deal
The euro surged yesterday as European leaders approved a second bailout for Greece meant to help that country avoid default and prevent a broader crisis.
German Chancellor Angela Merkel said European officials want to tackle the "root" of the crisis by easing Greece's debt burden. The deal will better equip the currency union with tools to fight the debt crisis and make it easier for other indebted countries once their aid programs end.
The deal also includes aid from private lenders, which the European Central Bank had opposed as a kind of default by Greece.
"The measures can mark a turnaround in the EU's management of its crisis," wrote Brown Brothers Harriman currency strategist Lena Komileva. But she noted that important questions remained: The cost of the program, and more broadly how Europe can help its most indebted countries improve their stagnant economies.
The euro rose to a two-week high of $1.4401. In afternoon trading, it was worth $1.4374, up from a low of $1.4137 earlier in the day before the deal terms started emerging. On Wednesday, the euro was worth $1.4229.
Euro trading has been volatile this summer as investors feared that the debt crisis would spread from Greece, Portugal and Ireland to the much bigger economies of Spain and Italy.
While the Europeans' deal means they're making progress on their debt problems, the US "seems stuck with a stalemate and significant chance of a downgrade" because of the political impasse on lifting the debt limit, said GFT currency analyst Kathy Lien.
Without an agreement to raise the government's borrowing authority, the US government could default on its debt, sending financial markets into chaos.
The dollar was broadly lower in other trading yesterday. The British pound jumped to $1.6296 from $1.6162.