Euro boosted by EU comments

The euro rebounded from close to tow-year lows versus the dollar today, after the European Commission announced reforms to improve investor confidence, although gains were expected to be fleeting due to mounting fears over banks in Spain.

The European Commission said that the eurozone should introduce a banking union and think about eurobonds and the banks’ direct recapitalisation from its bailout fund as it listed year-long recommendations in its report.

The euro climbed to $1.24684 from its 23-month low of $1.24241 on the EBS trading platform on the back of the comments, but experts said any rebound would only offer a fresh opportunity to offload the single currency. UBS currency strategist Geoffrey Yu said that they will sell into this rebound as the proposals will be lengthy and will involve changes to the treaty.

Earlier the euro dropped to its lowest point since July 2010, as institutional investors and real money step up the currency’s sales. Their selling gained momentum as worries grew about the struggling bank sector and mounting borrowing costs in Spain, and after Italy was made to pay a heavy sum to sell debt.

The common currency was viewed as highly vulnerable to more falls, with many experts anticipating a decline towards $1.20.