The euro jumped to a seven-week high against the dollar and gained strongly against the yen after European leaders ended a marathon meeting with an apparent deal on Greek debt and a roadmap for the expansion of Europe's emergency bailout fund.
French President Nicolas Sarkozy declared that talks with private-sector lenders had produced a "durable solution" to the Greek crisis, with an agreement by private investors to accept a 50% write-off on their holdings of Greek debt. The private-sector involvement had been a critical issue in the dispute.
As part of the agreed package, the European Financial Stability Facility is expected to be leveraged four to five times, to around 1 trillion euros ($1.39 trillion), although further talks are necessary, officials said.
By 11:50am local time in Tokyo, the euro had climbed to a seven-week high at $1.3995, from a morning low of $1.3865 and a late New York quote of $1.3906, according to data from EBS.
Against the yen, the common currency climbed to ¥106.44 from the New York quote of ¥105.98.
Markets remained somewhat skeptical, however.
"They are so good at presenting things like this, but they've just bought some time and the debt issues are still far from over," said Masanobu Ishikawa, a senior dealer at Tokyo Forex and Ueda Harlow.
He said the deal largely was within expectations and that the euro would remain under downward pressure in the medium-term.
Markets had gyrated through the European and North American sessions on Wednesday as the meetings went on, culminating in announcements around 11am Tokyo time on Thursday.
To the likely frustration of Japanese authorities, the euro's gains did little to dent the yen's rise against the dollar, with the yen hovering near record highs touched overnight. The dollar was at ¥76.04 from ¥76.16 in New York.
Japanese officials insist Japan's economic fundamentals do not warrant a yen at the current strong levels. Finance Minister Jun Azumi said early on Thursday that speculators are using Europe's debt crisis as an excuse to push the yen higher.
"It's clear that speculators are rushing into the yen while watching the European situation, rather than the (yen's) moves reflecting economic fundamentals," Mr. Azumi said.
Attention is also focused on the Bank of Japan, which is holding a one-day policy board meeting on Thursday, where it's expected to discuss further monetary easing.
The central bank hopes that putting more money into the economy would help push down the value of the yen. The most likely option is to add more funds to the BOJ's ¥50 trillion asset purchase program.
Among other currency pairs, the dollar was at 0.8792 Swiss francs from 0.8807 Swiss francs while the British pound was at $1.6005 from $1.5981. The ICE Dollar Index was at 75.944 from 76.209.
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