SAN FRANCISCO (MarketWatch) — The euro gained against the U.S. dollar to top $1.29 Thursday as debt talks in Greece appeared to be progressing satisfactorily and as buyers lined up for Spanish and French debt.
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Spain garnered enough demand from investors to sell more debt than it originally intended, and still pay lower yields. See more on Spain’s bond sales.
France also attracted good demand for its medium-term bonds — the first such auction since Standard & Poor’s stripped the country of its AAA rating. Read about France’s auctions.
Analysts said the demand for bonds from countries under pressure from the markets can be attributed to actions taken by the European Central Bank. It has made massive loans to banks and has been willing to accept sovereign debt as collateral, so banks are willing got buy the bonds and give them to the central bank to get loans.
“Markets love liquidity and this is reflected in a much better tone to risk sentiment as we get close to the end of the week,” said Kathleen Brooks, research director at Forex.com. “The successful French and Spanish bond auctions today should be expected since the ECB funding for banks relieves some pressure on Paris and Madrid to support their banks financially.”
The International Monetary Fund’s move Wednesday that it will likely push for another $500 billion in further lending resources helped lift the euro, said Michael Derks, chief strategist at FxPro, in emailed comments.
Derks also cited a media report that German Chancellor Angela Merkel will float the idea of a euro-zone growth and competitiveness pact at the next meeting with French President Nicolas Sarkozy.
Along with the shared currency, European stocks rose on hopes that Greece will reach agreement with private creditors over a key bond-swap deal.
However, traders still noted heavy positions preparing for the euro to go lower, and once the currency reversed, those trades needed to be unwound.
“The easy trade at the beginning of the year was to short euro,” said Jeff Feig, global head of G10 foreign exchange at Citi. “The euro finally put in a bottom and we could see it go back up to the low- to mid-$1.30s before the fundamentals will once again drive the euro lower.”
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The euro also rose for a third day against the yen, coming off near-record low levels that some worried could trigger currency-market intervention by Japanese authorities. Read about euro, Japanese yen.
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