Euro surges ahead of dollar on European debt deal

AP News
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Posted: Jul 21, 2011 6:11 PM
Euro surges ahead of dollar on European debt deal

The euro surged ahead of the dollar Thursday after European leaders agreed on a new bailout for Greece.

The International Monetary Fund and the eurozone countries will give Greece a second bailout worth $155 billion. The new deal also includes aid from private lenders. Greece was granted its first bailout, worth about $159 billion, last year.

The second bailout is meant to prevent the crisis from spreading to other countries. Euro trading has been volatile this summer as investors feared that the debt crisis could spread from Greece, Portugal and Ireland to the much bigger economies of Spain and Italy.

The euro was worth $1.4409 late Thursday, but it rose to a two-week high of $1.4438 in after-hours trading after details of the deal were released. On Wednesday, the euro was worth $1.4229.

Besides a new bailout for Greece, European leaders also agreed to overhaul their bailout fund, allowing them to recapitalize banks in the region.

"The fact that the EU has thrown everything including the kitchen sink into this is very comforting for investors," said GFT currency analyst Kathy Lien in a research note.

While the Europeans' deal means they're making progress on their debt problems, the U.S. "seems stuck with a stalemate and significant chance of a downgrade" because of the political impasse on lifting the debt limit, said Lien. Without an agreement to raise the government's borrowing authority, the U.S. government could default on its debt, sending financial markets into chaos.

The dollar was broadly lower in other trading Thursday. The British pound jumped to $1.6307 from $1.6162. The dollar fell to 78.43 Japanese yen from 78.80 yen, edged down to 0.8163 Swiss franc from 0.8191 franc and slid to 94.45 Canadian cents from 94.74 cents.