The euro rallied from last week's 14-month low against the dollar today after European Union leaders agreed on an emergency loan package to prevent Greek's debt crisis from spreading through the region.
The package, which with IMF support may reach €750 billion, along with measures by central banks to address funding strains and a European Central Bank plan to buy the region's government bonds, calmed nerves after contagion fears triggered a global rout in equities and other risky assets last week.
However, uncertainty persisted over whether the package would gove the euro lasting support since Greece and other peripheral euro zone countries must tackle fiscal deficits when their growth outlook is deteriorating.
By 0730am the euro was up 1.6 per cent at $1.2964, having fallen to $1.2510 on trading platform EBS last week.
Mounting short positions on the euro prompted investors to cover their positions, helping the single currency recover.
Latest data from CFTC showed currency speculators boosted bets in favour of the dollar to a level strategists said was the highest since the euro's launch in 1999.
The single currency was running into resistance at around $1.30 and still down more than 9 per cent since January, making it the worst performing major currency.
The euro rose 3.2 per cent to 120.52 yen after hitting an eight-year low near 110.44 last week.
The dollar fell 1.2 per cent against a basket of major currencies to 83.42. The US. Federal Reserve reopened currency swap facilities with other major central banks yesterday to ease market strains in Europe.
The Fed revived facilities established during the 2007-2008 financial crisis with the European Central Bank, and the central banks of Canada, the UK and Switzerland.
Sterling rose 0.3 per cent to $1.4843 after concerns about a political stalemate following an inconclusive UK pushed it to a one-year low of $1.4475 on Friday.
Britain's opposition Conservatives and Liberal Democrats will hold further talks on Monday to try to stitch together a deal to govern with markets anxious about how the new government will address precarious public finances..
The Bank of England is expected to leave interest rates at 0.5 per cent and not to undertake further quantitative easing purchases when it concludes its Monetary Policy Committee meeting today.
Reuters