Euro strengthened against the dollar and the yen on Tuesday morning on speculation that the ECB's president, Mario Draghi, will give the debt-ridden euro countries a helping hand by buying their bonds in the market.
According to Jean-Paul Gauze, who sits in the European Parliament for France, Mario Draghi said to the European parliament that he was open to the possibility of buying government bonds years in the market with a maturity of up to three.
In Draghi’s view, the ECB has no mandate to finance individual EU member states, but the purchase of shorter bonds with a term of three years does not constitute state funding, according Gauze. The ECB can, therefore, through buying of short-term government securities, help to bring the high borrowing costs for the debt-ridden country down.
It will be a positive surprise for the euro, if the ECB really decides to buy bonds with a maturity of up to three years,
Although the euro will be strengthened on speculation, several analysts believe, that the single currency will weaken in the coming months if the ECB boosts printing press to finance acquisitions.
Tuesday the EU's permanent president, Herman van Rompuy, meet with German Chancellor Angela Merkel in Berlin. At the same time French President, Francois Hollande, visit the Italian president, Mario Monti, to discuss the debt crisis.
Up to the meetings, the EU took another hit as credit rating agency Moody's Monday lowered its outlook for the EU's rating to "negative" because the agency believes that the crisis can be painful for Germany, France, Britain and the Netherlands, which accounts for 45 percent of the EU's gross domestic product (GDP).
Euro strengthened to 1.2617 against the dollar from a level at European market closing Monday at $ 1.2583. The single currency strengthened to 98.85 against the yen to 98.47 yen on Monday. Dollar strengthened to 78.34 against the yen from European market closing Monday at 78.26 yen.
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