The euro gained against the US dollar as EU leaders reached an agreement that alleviated concern banks would fail and spurred optimism they were closer to resolving the region’s sovereign-debt crisis.
The US dollar fell against all its major counterparts this week after EU officials during a two-day summit in Brussels dropped the requirement governments get preferred-creditor status on crisis loans to Spanish lenders.
“The themes this week were all around the EU summit and the anticipation that nothing of any substance was going to be resolved — then headlines proved that to be incorrect,” Jack Spitz, managing director of foreign exchange at National Bank of Canada in Toronto, said on Friday.
The euro rose 0.8 percent this week to US$1.2667, after touching US$1.2407, a three-week low, before the summit. It was little changed against the yen at ￥101.04. The yen rose 0.8 percent to ￥79.79 versus the US dollar after reaching a two-month low on Monday.
Spain’s 10-year bond yield dropped 61 basis points to 6.33 percent on Friday after falling as much as 55 basis points, the biggest decline since Dec. 5. Italy’s 10-year yield slid 38 basis points to 5.82 percent.
The EU has “addressed the issues on the seniority of Spanish loans,” Roy Teo, a currency strategist in Singapore at ABN Amro Private Bank, said on Friday. “The fact that right now they are renouncing the seniority status means private bondholders will have similar, equal, weighting. It’s positive for the euro.”
The euro still registered its biggest quarterly drop against both the yen and the US dollar since September, weakening 8.6 percent versus the yen and 5.1 percent against the greenback.
The pound posted a 0.6 percent gain to trade at US$1.5680. While it weakened 0.1 percent to ￡0.8069 per euro in the five days to Friday, sterling advanced for a fourth quarter.