Euro rises to a 4-month high against the Dollar
Euro rises to a 4-month high against the Dollar as the German Constitutional Court Approves of a multi-billion Euro Rescue Plan
The German constitutional court on 12 September, 2012 approved of the German government’s participation in the Euro zone’s latest rescue plan, pushing the Euro to a 4-month high against the dollar and other currencies. The Court allowed the government to contribute as much as €190 billion Euro to the rescue plan without having to take permission from the German parliament. These terms buoyed the sentiments in the forex market, which was expecting tougher terms from the Court.
German court verdict supporting EURO raise
Within hours of the Courts verdict, the Euro rose 0.35% against the US dollar to close at 1.2899. It continued to rise on 13th September, when it closed at 1.2985. The Euro has recovered significantly since it hit two-year lows against the USD in July 2012, when it hit a low of 1.2042 on July 24. Online trading in the Euro has again picked up after the Court’s verdict was declared. Apart from the Euro, the Spanish, German and Italian share indexes too rose after the ruling.
German court vs. the European Central Bank plan
It was only last week that the European Central Bank had unveiled the plan, called European Stability Mechanism, to reduce borrowing costs for beleaguered countries such as Spain and Greece by buying bonds. The ECB’s plan had strengthened the Euro, but it was soon challenged in the German court because of its far-reaching scope. In its ruling, the Court has said that the plan could go ahead as long as the total German liability under the plan was less than €190 billion. Any additional liability will have to be ratified by the parliament, the Court ruled.
German participation in the plan was of prime importance because it contributed as much as 27% of all the funds for the plan. The total outlay of the plan is €500 billion, and Germany contributes as much as €190 billion, part of which has already been committed.
Experts and forex traders were of the view that the plan is most likely going to help strengthen the Euro, but in the long term there was still a lot of uncertainty regarding the European economy.
