LONDON (MarketWatch) -- The euro and the British pound gained ground Monday, boosted by a return of risk appetite as governments around the world began unveiling measures designed to shore up troubled banks.
The British government announced plans to inject as much as 37 billion pounds of taxpayer money into the financial sector in a bid to re-capitalize ailing banks. Measures also included guarantees of bank debt in an effort to get frozen money markets moving again. See full story.
And the weekend saw euro-zone leaders in Paris agree to undertake similar measures, with Germany, France and Italy expected to soon unveil details of programs to backstop troubled banks. See full story.
Meanwhile, a meeting of Group of Seven finance ministers and central bankers in Washington produced a wide-ranging but vague plan for dealing with the ongoing financial crisis.
Overall, the measures were enough to spur some renewal of risk appetite, traders said.
That put the Japanese yen, and to a lesser degree, the U.S. dollar under pressure.
The yen, in particular, had soared last week, cementing its role as a safe haven amid mounting financial turmoil. The dollar had lost ground against the Japanese unit, but gained ground against other currencies, in part due to liquidation by U.S. investors of foreign-denominated assets, strategists said.
The euro rebounded Monday to trade at $1.3591 against the dollar in recent action, up from $1.3394 in North American trade late Friday. The British pound traded at $1.7227, up from $1.7064.
The dollar traded at 100.53 Japanese yen, down from 100.74 yen.
The euro, which skidded by around 8% against the yen last week, was up 0.8% Monday at 136.43 yen.
"Good news on the financial crisis is also good news for the euro, one of the most prominent victims of the financial crisis," wrote strategists at KBC Bank in Brussels.
But others said upside may be limited, however, by uncertainty over the impact of the government measures.
"While near-term these moves are understandable, it remains to be seen whether confidence can be restored more lastingly and the money markets unfrozen following these measures," said Martin McMahon, currency strategist at Credit Suisse. "Eventually we assume that the answer will be yes, but are not convinced the situation has been fully stabilized yet."
Meanwhile, a sustained shift toward a "risk-positive" trading environment would be bullish news for the U.S. dollar, opening potential for a test of the $1.7500 level against the U.S. dollar after falling below $1.6800 last week, wrote Naheem Wahid, currency strategist at HBOS.
"Shifts in financial market sentiment are likely to be the dominant driver of currencies this week, with data taking a back seat," Wahid said.
Indeed, the pound had little reaction to U.K. producer price inflation data for September.
The Office for National Statistics said falling prices for manufactured goods and petroleum products contributed to a 0.3% monthly fall in output prices. On an annual basis, prices were up 8.5%. Economists had expected a 0.4% monthly drop and an 8.9% year-on-year increase.
The data offer further justification for the Bank of England's decision last week to cut its key lending rate by half a percentage point to 4.5% as part of a globally coordinated series of rate cuts and point to a further half-point reduction in the rate by the end of the year, said Benjamin Williamson, an economist at the Center for Economic and Business Research.
