Euro finds some strength
Expectations were low prior to the EU summit but it proved to be one of the best received. Spanish and Italian bond yields fell and the euro recovered strongly on Friday after eurozone leaders agreed measures to cut soaring borrowing costs in Italy and Spain. It was agreed that EU bailout funds could be used to directly recapitalise the banking sector rather than having those funds come via the respective country’s government. Importantly, these EU loans will no longer have preferential creditor status above bonds already held by international investors.
The US consumer is easing back on spending as slower job gains and a lack of wage growth impact on household finances. Consumer spending was unchanged in May, the weakest report since November, after the previous month’s growth was reduced to 0.1%.
On the FX markets, the EU summit improved sentiment on the markets benefiting risk assets and risk currencies. EUR/USD bounced back strongly hitting a high of $1.2692 in London trading on Friday. Sterling also recorded gains against the USD breaking through the $1.57 level. Both currency pairs have eased back in early morning trading.
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