- Written by Sam Coventry
- Category: Exchange Rates
- Published: 11 June 2012
The euro (Currency:EUR) - a sensitive barometer to risk-sentiment on global markets - is sharply higher against a number of key currencies this morning following weekend news of a Spanish banking bailout.
The euro dollar exchange rate is 0.62 pct higher on a day-to-day basis; EUR-USD is at 12596 at 10 AM in London.
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The euro pound exchange rate is however unable to make much progress however, EUR-GBP is at 0.8096.
"The euro jumped higher this morning and currently tries to regain the 1.2625 resistance area. There is also a positive reaction on the Asian equity markets this morning. However, there is no euphoria at all. There are still a lot of key issues/details that need to be decided, or that are at least not published yet," says a morning currency note from KBC Markets.
Joining KBC Markets in cautiously welcoming the Spanish bailout is Gareth Berry at UBS:
"It is of course reassuring that concrete steps are now being taken to address the banking system’s capital shortfall, and that scaled-up Spanish sovereign issuance will not been needed to first raise the funds at auction.
"However, we would caution against excessive optimism given that any external funds provided will still lead to an increase in Spain’s debt-to-GDP ratio.
"Also, questions remain over which of the two EU bailout facilities will supply the cash if the new European Stabilisation Mechanism is involved, existing sovereign bondholders may find themselves suddenly subordinated and may thus be tempted to sell.
"Furthermore the prospect of a large-scale recapitalisation drive raises the risk of wide-spread shareholder dilution which could trigger further weakness in local equity markets."
So for now risk appetite has responded favourably to the weekend news that Spain has become the fourth Eurozone member to seek external financial assistance.
Indeed, the euro was not the only winner, the Australian dollar was able to move, briefly, above parity against the US dollar once more.