Dollar slides on Europe bailout

By Julianne Pepitone and Chavon Sutton, staff reporters


NEW YORK (CNNMoney.com) -- The dollar tumbled against the euro Monday after European Union officials' approval of a $1 trillion bailout to stabilize the zone's currency and rescue debt-choked Greece.

What prices are doing: The dollar fell 0.2% against the euro to $1.2782. The greenback fell 0.4% against the British pound, trading at $1.4862.

chart_ws_currency_usd_eur.03(2).png

The dollar was up 1.8% versus the yen at ¥93.22.

What's moving the market: The euro got a major boost after European Union officials met this weekend to discuss debt problems in Greece and volatility in the shared currency.

On Sunday, the EU approved a rescue package, valued at about $1 trillion, that has three main components. The biggest provision will use nearly $570 billion to create government-backed loans meant to shore up confidence in shaky credit markets.

That plan will put the weight of larger, stronger economies such as Germany and France behind weaker members of the European Union, such as Greece, Portugal and Spain.

About $77 billion will go toward a euro stabilization fund. The International Monetary Fund said it would contribute $284 billion.

What analysts are saying: "What you're seeing today is a reversal of [bearish] moves last week," said Vassili Serebriakov, a currency strategist at Wells Fargo.

The dollar had been up as much as 1.8% against the euro Monday, before giving up some of its gains. Serebriakov says this is a clear indication that the currency markets, though initially enthusiastic about the European plan, are focused on the medium- to long-term issues facing Europe.

"The economic impact of the austerity program is weighing negatively on sentiment toward eurozone," he said. "The eurozone economy is expected to underperform and that will translate into continued under performance of the euro."

Although the latest move from the EU and IMF eases tensions and fears in the short term - as reflected by strong gains in international equity markets, commodities and riskier currencies - Serebriakov cautions that the "corrective bounce" in the euro could be short lived.

"It's (the bailout package) certainly a notable move and had some of the desired effects, but it's not nearly enough to turn the euro around," said Serebriakov.  To top of page

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