The euro recovered from a two-week low against the dollar and yen on Thursday as the Spanish government outlined its new budget plans.

The euro rose to a high of $1.2913 as Spain unveiled a budget that included further measures to reduce it deficit. Around €40bn of spending cuts next year have been proposed with social spending bearing the brunt of around 65% of the proposed cuts.

Spain's Deputy Prime Minister Soraya Santamaria de Saenz said the government also hopes to use over €3bn from its pension reserve to cover Treasury costs.

The single currency later traded at $1.2842 compared to $1.2868 on Wednesday.

The yield on 10-year Spanish government bonds fell after the budget announcement to 5.92% after rising above 6% the previous session.

The dollar index, which measures the US currency against a basket of six other currencies, fell to a low of 79.561 after investors were less than impressed with the day's US economic data. The index later traded at 79.772 from 79.841 on Wednesday.

Against the yen, the dollar bought ¥77.63 yen compared to ¥77.73 the previous day while the euro rose to ¥100.19 before later trading at ¥99.62 later in US trading.

Sterling changed hands at $1.6235 from $1.6159 after data showed the UK economy contracted less than expected in the second quarter. The euro weakened 0.5% to 79.24p as focus remained firmly on Spain's budget and as markets remain unclear as to whether Spain will ask for a financial bailout.

Elsewhere the Australian dollar rose to $1.0411 from $1.0344.


CJ

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