Thanks to the announcement made by the President of European Central Bank Mario Draghi, the shared currency of the 17 countries of Euro region, the Euro has been able to post is biggest gain in the last 5 months against USD. Draghi stated that the decision to keep the interest rates unchanged was a unanimous decision. Additionally, he assured that the economy of this region will recover gradually.
Euro may experience further gains against other currencies as well. When it comes to Yen, Euro has already posted the strongest value since July, 2011. The decision of Spanish Government to sell more bonds than the initial maximum target in the very first debt auction in 2013 helped Euro as well.
According to the Senior Currency Strategist of Standard Chartered Plc., Mike Moran, the investors knew that the broader European economy is quite slack and many were looking forward to the dovish undertones as well. However, thanks to Draghi’s upbeat message, Euro was helped big time.
Today, Euro increased by 1.4% and is at $1.3252 currently. Against Yen, Euro went ahead by 1.9% and is at 117.01 Yen now. Incidentally, this is Euro’s biggest value since 5th July, 2011, against Yen. The 2-year cross currency basis swap is currently 25 basis points (Least since July, 2011), from that of Euro interbank offered rate. The same gap was of 35 basis points in November.
The economists have enhanced their 2013 year end forecast for Euro though. Morgan Stanley improved it to $1.26 from $1.20. The estimation for Australian Dollar was also enhanced from 96 US Cents to $1.05.
Though the upper target for the bond sale was 5 billion Euros, after the 3 bonds were sold, Spanish Government raised a total of $7.69 billion. The sale procedure was managed by the Spanish Treasury. On the other hand, the yields on the Spanish benchmark 10-year Government bonds went down to a 10-month low figure of 4.89%. In last July, the yields were as high as 7.75%.
Saxo Bank’s Foreign Exchange Strategy Department’s head, John Hardy stated that when Draghi stated that the decision was unanimous; Euro received a big boost and therefore showed high jumps. Incidentally, the gradual recovery process mentioned by Draghi should start from 2013, but, probably at a later part of the year.s