The U.S. Dollar rose against the Euro after the Federal Reserve refrained from implementing a third round of quantitative easing when it met last week. Instead, the Fed announced that it was extending “operation twist,” thereby reducing speculation that the greenback will weaken. The U.S. Dollar made further gains against the shared currency as German Chancellor Angela Merkel stated that she opposes direct bailout financing to stem the region’s debt crisis. She added that Spain is responsible for its banking system, and a direct bailout goes against the region’s previous treaties. Investors are now looking forward to the two-day E.U. summit which will start on June 28th in Brussels. The Euro rate fell the most in five months after Moody’s Investors Service downgraded 15 major banks, thus fueling concerns the crisis in the Euro-zone is deepening. And while E.U. leaders continue to work hard to contain the crisis, a decline in investor confidence has left Germany as the sole country in the block with a positive outlook. The Euro managed to find support after the European Central Bank announced its intentions to ease rules on collateral.
The Yen declined against the majority of its money market counterparts on speculation the Bank of Japan will expand monetary stimulus. But as risk aversion increased in the market, safe havens like the Swiss Franc and the Yen rose.
Lastly, the British Pound finished the week slightly lower against the U.S. Dollar as risk appetite climbed on optimism that the next Euro-zone summit would help resolve the debt crisis.