Euro Advances as Stocks Rally. Future Still Looks Uncertain

The euro gained against the US dollar and the Japanese yen as equities advanced and on the speculation the European Central Bank won’t reduce interest rates, but gains of the shared European currency were limited because of concerns about the financial crisis in the region.

Market participants speculate that ECB President
Jean-Claude Trichet would refuse to cut borrowing costs, increasing supply of cash to bank of the Eurozone instead. Many economists are concerned about such possibility as they think that the current state of the European economy can’t allow the current level of lending rates and the rates should be decreased. Investors were relieved somewhat as European Union policy makers are delaying their plan to incur losses on holders of European shares, but the plan was merely postponed, not rejected.

Stocks were rallying despite all the concerns, supporting the euro. The Stoxx 600 gained as much as 3.1 percent to 228.84. The UK’s FTSE 100 rose 3.1 percent, showing the biggest gain since May 2010, while Germany’s DAX rose 4.1 percent and France’s CAC 40 climbed 3.6 percent.

EUR/USD jumped from 1.3993 to 1.4096 yesterday, but retreated today and traded at about 1.4071 as of 00:32 GMT. EUR/JPY on the previous trading session rose from 108.67 to 108.88 and remained near this level today.

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