Euro climbs to four-month peak ahead of German decision

The euro reached a four-month peak versus the US dollar on Wednesday ahead of a decision by a German court on whether it will back the rescue plan for the eurozone.

Traders said the single currency could surge past stop-loss orders of $1.2895 should the German Constitutional Court give its backing to Europe’s largest economy participating in the bloc’s bailout fund. However, should the news disappoint, the euro could be faced with a widespread selloff.

The common currency shot up to $1.28866 on the EBS trading platform, a rise of 0.2 per cent on close of business on Tuesday. Some of its early gains were lost, however, as hedge funds and sovereign investors offloaded the currency in the early European session.

The euro has now gone up by almost seven per cent since falling to a two-year trough of $1.2042 towards the end of July, driven by heightened optimism on the future of the region’s asset since the European Central Bank announced that it planned to help struggling countries in the bloc reduce their borrowing costs and by an increasing likelihood that the US Federal Reserve is ready to step in to prop up its wavering economy and inject carry out further monetary easing.