Euro Jumps On Spanish Bailout
The euro jumped to a two-week high following Spain’s decision to accept a European Union bailout – the fourth such event in the last three years. Although Spanish policymakers are dubbing the move a simple recapitalization of banking funds and not an official bailout, market speculators are likening the decision to previous bailouts accepted by Portugal, Ireland and Greece.
In a Saturday conference call, Euro finance ministers offered Spain’s Prime Minister Mariano Rajoy a bailout package worth 100 billion euros or $125 billion. The loan, which exceeded official estimates of $90-100 billion, is meant to help fund the befallen country’s financial system – which has been inundated with rising mortgage defaults and a tightening of lending standards. The measure also comes on the heels of a recent Spanish benchmark auction that showed healthy demand for the country’s debt – but not without the cost of higher yields to global investors. Benchmark bond yields in Spain still remain above 6%.
Not all that surprising, the bailout news is expected to end recent uncertainty around Spain’s fate – supporting a jump in the single currency against the US dollar in the short term. Nonetheless, with the European Union still remains in a bind as the overall condition of the region remains in flux. The notion is likely to add downward pressure on the Euro in the long term.
More on the Euro - EUR/USD Technical Outlook – June 8th