The concessions made by eurozone governments in a deal to bailout Greece and support weaker economies were more broad based and varied than what markets have seen in the past. The agreements made at the emergency summit saw a renewed faith in the euro from investors. Attention will now turn to the other side of the Atlantic where budget negotiations are still at a relative impasse. Not only are negotiations encumbered, but also S&P reminded markets that not only should the debt ceiling be raised by August 2, but also deficit reduction measures need to be seen as adequate.

Sterling

The pound has benefited from a sell-off in the US dollar against the euro. The dollar’s losses against the euro helped to push sterling up to a four-week high. Against a rebounding euro, sterling had little chance and was pushed back to lows seen one week ago.

US dollar

The Europeans made a big step forward in resolving their debt crisis. The actions taken are reflected in currency markets that saw the dollar come under heavy selling pressure. Now, if only the White House can come to an agreement with Congress over how to cut the budget, the world would be a safer place. Unfortunately for now, the negotiations are still underway and the deadline for raising the debt ceiling or face default is merely six working days away. Not only has the spotlight now turned to Washington for resolution in its negotiations, but also rating agency S&P reminded markets of exactly what it was looking for in order to avoid downgrading the rating of US sovereign debt.

Euro

The euro strengthened on news of an agreement to bailout Greece among member nations. A €109 billion loan over the coming years was given to Greece. The plan includes the participation of Greek bond holders who have agreed to hand over the debt in return for new paper with longer maturities and lower interest rates. In addition to private involvement, the plan announced aims to help get the Greek economy growing and will help to reduce harsher loan terms with all three countries who have received bailouts. Lastly, the European Financial Stability Facility would be given new powers that would allow it to purchase government bonds in the secondary market and by doing so help recapitalise banks.

Japanese yen

The yen moved to a four-month high against the US dollar. The gains put it back near the highs seen after the March earthquake, which triggered a round of G7 intervention in currency markets.

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