The euro rose against most currencies on Wednesday, cheered by reports that the European bailout fund aimed at containing the region's debt crisis will be boosted to as much as 1 trillion euros. European leaders plan to leverage the 400 billion euro European Financial Stability Facility by "several fold, a draft eurozone statement, while European Union sources said the amount would be leveraged around four times.
"The market likes this on a short-term basis because somehow that 1 trillion from the bailout fund is going to end up in the financial system and that would boost asset prices," said Lance Roberts, chief executive officer and chief economist at asset management firm Streettalk Advisors in Houston, Texas.
The euro briefly rose against the dollar following the eurozone draft statement, but slipped as investors took in the news that details of the plan will only be decided in November. The euro held steady late in the session as details emerged about the extent of leverage for the rescue fund.
In late afternoon trading, the euro was slightly down on the day at $1.38920, but well above the session low of $1.37980. It had risen as high as $1.39080 in the wake of the draft statement. The euro rose against other major currencies, up 0.2 percent at 105.950 yen and up 0.4 percent at 1.22510 Swiss francs. Against sterling it was up 0.1 percent at 87.03 pence.
Earlier, Germany's lower house of parliament approved a motion to strengthen the eurozone rescue fund through leveraging, providing Chancellor Angela Merkel with the mandate she needs to negotiate at the European summit in Brussels. Also on Wednesday, the incoming head of the European Central Bank, Mario Draghi, signalled the bank would go on buying bonds of troubled eurozone members to combat market turmoil.
The greenback fell to 75.709 yen on EBS before rising. It was last at 76.250, up 0.2 percent on the day. Reflecting the risk of further yen strength, Action Economics said there is increasing interest for short-dated dollar/yen strikes from 75.00 to 74.00.
The 75.00-yen area is where long-term leveraged exotic structures and retail margin call orders are noted and a breach could see significant yen demand, the research firm said. Japan's central bank is likely to debate easing monetary policy further at a meeting on Thursday, sources said. The Australian dollar was down 0.3 percent at US $1.0391 after Australia's underlying inflation data came in below expectations, increasing the chances of a rate cut.
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