Euro Rescue Deal Taking Shape

The euro is marching higher against most of its major counterparts as the European leaders’ summit finally presented decisions to the markets. The deal’s three pillars are a 50% haircut, the leveraging of the EFSF to 1.4 trillion USD and a requirement for banks to reach 9% core capital reserves by June, 2012. The meeting was long and an initial deadlock between the European leaders and private bondholders was overcome when the threat of total insolvency of Greece was brought at the table. The eurozone Finance Ministers will finalise the details of the deal sometime in November. Versus the US dollar, the single currency reached the 1.40 area and it will be very interesting to see if the rally can continue higher. Against the Swiss franc, the euro rose to 1.2233 from 1.2211. Against the Japanese yen, the euro remained almost unchanged opening at 105.79 and closing at 105.76.

The US dollar advanced against a basket of currencies as a string of economic data came in better than expected. Against the Swiss franc, the US dollar rose to 0.8810 from 0.8786. Against the Japanese yen, the greenback rebounded to 76.17 from 76.11. This came in as the Japanese overnight call rate remained unchanged at 0.1%, and state officials continued a series of public statements on their determination to weaken the yen.

The Australian dollar dropped to 1.0401 from 1.0420 against the US dollar, as risk appetite was limited in anticipation for the EU summit resolutions. The British pound put a hold to its rally against the US dollar, declining to 1.5904 to 1.6001. Bank of England’s Posen said that 75bln GBP of quantitative easing is “about right” and declared his confidence that CPI will be below the mid-2012 target, identifying premature tightening as the biggest risk.

Oil prices dropped to 89.98 dollars a barrel from 92.40. Gold advanced higher to 1723.28 dollars an ounce from 1702.14. Silver followed suit rising to 33.4425 dollars an ounce from 33.0050