Euro flies to protect pledge by German, France

NEW YORK: The euro climbed to its highest in more than a week versus the dollar on Monday after Germany and France pledged to have a plan soon to protect banks and the region from its sovereign debt crisis.

The single currency, which was also helped by unexpectedly strong industrial output data from France and Italy, is on track for its best daily rise since July 2010.

After their weekend meeting, German Chancellor Angela Merkel and French President Nicolas Sarkozy promised to present a plan before a G20 summit in early November to shore up euro zone banks, settle the Greek debt crisis and help growth in Europe.

"Certainly Merkel and Sarkozy pledging a plan to support European banks by November helped.

So we're seeing risk coming back on and that's helping the euro and this rally could go on given the extent of short positioning in the market," said Marc Chandler, global head of currency strategy at brown Brothers Harriman in New York.

The euro climbed 1.8 percent to $1.3617, above a nine-month low of $1.3145 set last week on trading platform EBS, as investors closed out their short positions initiated earlier.

Euro's rebound, however, could fade if no comprehensive plan emerges in coming weeks, with the risk of renewed bickering between euro zone policy-makers seen as a threat to quick decision making.

"But at the end of the day Greece still has problems," Chandler said.

The cash-strapped nation met with the European Union, International Monetary Fund and the European Central Bank met with Greek finance minister on Monday to complete talks for 8 billion euros worth of aid so Athens could avert a default in November.

Stronger-than-expected French and Italian outputs in August reduced fears of sharp economic pullbacks in euro zone's second and third biggest economies.

They helped propel the euro higher on the day.

The pledge from Merkel and Sarkozy, albeit short on details, gave a boost to the euro and other perceived riskier currencies. Improved sentiment led to a selling of the dollar against the Swiss franc.

Traders will now focus on the voting in Slovakia and Malta to ratify the changes to the European Financial Stability Facility, a 440 billion euro bailout fund.

Copyright Reuters, 2011