Euro stays firm on policy hopes

The euro held firm versus the dollar today, as vague hopes of further policy action in the US and Europe led to short-term players winding back their hedges against the currency.

The Australian dollar also helped boost risk sentiment as it climbed to a three-week high on the back of surprisingly positive Australian employment data. The common currency was last seen at $1.2569, having climbed briefly to $1.25859, the highest it has been since the end of last month and around 2.3 per cent above $1.2288, the two-year low hit last week.

The single currency has an immediate resistance at around $1.2600, then $1.2671, a level that represents a 38.2 per cent retracement of its fall between 1 May and 1 June. European Union and German officials are urgently looking at ways to rescue Spain’s embattled banks, revealed European sources.

Even though Spain has not requested outside assistance yet and remains against being put under international supervision, indications that policymakers sense a crisis – like the G7 conference call – were sufficient to make market players wary of selling the currency too much.

In addition, talk of further US Federal Reserve quantitative easing also helped boost risk assets as a number of top officials at the Fed insisted that stimulus was needed. The Fed’s vice chair Janet Yellen said that monetary stimulus is necessary to boost the fragile economy and because the European crisis is worsening.