The rand was firm in quiet morning trade on Friday as markets cheered the $150bn European growth pact after more than 13 hours of talks.
“The devil will be in the details and a more sober reflection as the news was only announced 4am our time‚” a local trader said.
At 08:45 the rand was bid at R8.3022 to the dollar from its previous close of R8.3979. It was bid at R10.4515 to the euro from its previous close of R10.4569 and at R12.9714 against sterling from R13.0315 before. The euro was bid at US$1.2599 from its previous close of $1.2446.
Standard Bank said in its morning comment that a range of new measures announced at the European Union (EU) summit on Thursday evening had been welcomed by the market.
“These new measures are seen as bringing the EU closer to a more permanent solution to the region’s debt crisis. The euro has rallied strongly on the latest developments‚ with other risk assets — including the rand — also benefiting from the positive turn of events‚” the bank said.
Dow Jones Newswires reported that the euro soared against major currencies in Asia on Friday after EU leaders unexpectedly came up with much-needed plans to ease concern about the bloc’s sovereign-debt and banking problems.
EU leaders announced an opening up of access to two bail-out funds - the European Financial Stability Facility and its successor‚ the European Stability Mechanism (ESM) - for eurozone countries not already receiving assistance‚ with an eye to stabilising volatile markets.
European Council president Herman van Rompuy said the European Commission would propose a single bank supervisor‚ after which eurozone banks would have direct access to the ESM.
“The news of a direct capital injection without worsening sovereign debt positions is positive for Spain‚” said Yuji Saito‚ director of foreign exchange at Credit Agricole Bank in Tokyo.
A rise in Spanish bond yields has recently been the primary concern for global markets with regard to the European debt crisis.
The news “fully lives to up to what the market is eager to see”‚ said Saito. The euro would likely keep rising into the next week on the back of improved risk sentiment‚ he said.
The single currency briefly rose to a one-week high of $1.2628 on the developments in Europe.
Van Rompuy also said Spain’s ESM bank loans would not have senior creditor status‚ easing concern among nonofficial investors over subordination.
These comments raise expectations that “the purchase of Spanish and Italian debt in the secondary market can be handled with ease”‚ said Tsunemasa Tsukada‚ chief manager of forex and financial products trading at Mitsubishi UFJ Trust and Banking. - I-Net Bridge