Page last updated at 15:50 GMT, Tuesday, 9 February 2010

Euro bounces back against the dollar and pound

Euro and dollar notes

The euro has strengthened against both the pound and the dollar as currency traders' fears about European debt levels begin to recede.

Concerns about high deficits in Greece, Spain and Portugal had pushed the euro sharply lower in the past month.

But the currency was up almost half a pence, or 0.5%, against the pound, at 87.93p. Against the dollar, the euro rose 0.3% to $1.374.

European Union leaders meet on Thursday and budget deficits are on the agenda.

Currency traders were particularly buoyed by the news that European Central Bank (ECB) president Jean-Claude Trichet would fly in from Australia to attend the meeting.

"Mr Trichet has not always attended these meetings and so the market is taking his late change in schedule as an indicator that the ECB may be looking to work with the EU on a solution to Greece's debt problems," said Joshua Raymond at City Index.

Last month, the Greek parliament approved a three-year plan to cut the country's deficit from the current 12.7% of its annual gross domestic product (GDP) to 2.8%.

However, some analysts remained unconvinced that Greece could deliver such swingeing cuts.

Fears that Greece's debt problems may be shared by other European states even forced some observers to question whether some countries may be forced out of the euro, further weakening the currency.

But analysts said that hopes the EU will now act to address high debt levels have, for now, quelled such fears.

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