German court verdict drives euro to four-month peak

The euro moved up to a four-month peak versus the dollar after Germany’s Constitutional Court approved the European Central Bank’s new rescue plan for the eurozone.

However, the German court said that its ruling was only made on the European Stability Mechanism on the condition that any contribution which Germany makes in excess of 190 billion euros would first have to be rubber stamped by the country’s lower house of parliament.

The single currency went up by 0.5 per cent to $1.2937, going beyond option barriers of $1.2900, to hit its highest point since the middle of May. Should the Federal Reserve decide to inject further monetary stimulus into the US economy at its meeting on Thursday, the euro can expect to experience further gains.

Barclays currency strategist Guillermo Felices said that now the German court has finally ruled on the rescue plan, the euro will be able to continue its rally against the greenback. He added that a Federal Reserve quantitative easing decision could help the currency climb higher, but that a knee-jerk reactions is likely to be limited.

Last week the European Central Bank announced plans to reduce the borrowing costs of struggling eurozone states such as Italy and Spain with bond purchases. This led to the common currency setting off on a week of gains that has culminated in today’s high.