TOKYO—The euro rose versus the dollar and the yen Wednesday in Asia, as some positions betting on a further decline in the common currency were covered amid improved risk sentiment ahead of a European Central Bank refinancing operation later in the global day.
Asian trading started with a positive tone in terms of risk sentiment after U.S. stocks rose strongly Tuesday following a surge in U.S. housing starts, and on better-than-expected German business sentiment data and Spain's successful treasury-bill auction.
Expectations that the ECB operation would ease the European sovereign-debt crisis sent the euro higher versus the dollar, triggering stop-loss buying orders, dealers said.
"Gains in Asian stock markets were expected, as was risk-on trading," said Motonari Ogawa, a senior foreign-exchange dealer at Barclays Bank in Tokyo.
The ECB called for bids Tuesday in the first of two keenly awaited three-year refinancing operations, introduced earlier this month to ensure that banks have adequate funding and will continue granting loans to firms and individuals.
Some market participants believe that the new funding facility might encourage private banks to buy their government's debt or hold on to existing sovereign bonds.
Significant demand for the operation may trigger further position covering and potentially send the euro higher versus the dollar by 100-150 pips, the Barclays dealer said.
"Given the large accumulation of euro short positions, any development can be easily taken as positive these days," said Daisuke Karakama, market economist at Mizuho Corporate Bank.
Still, in the longer run, the bias for the euro remains downward, dealers said.
Mizuho's Mr. Karakama said the movement of interbank lending rates following the operation is a factor in how the European sovereign-debt crisis will play out.
Many analysts expect demand at the operation to exceed €300 billion as banks seek to secure long-term funding amid deepening strains on interbank markets.
Meanwhile, the Bank of Japan decided Wednesday to refrain from taking additional easing steps despite concern over Europe's debt crisis and the yen's strength, as relatively calm market conditions give it time to monitor the effects of its previous easing measures.
The euro was at $1.3112 as of 0450 GMT compared with $1.3082 late Tuesday in New York, according to EBS. The common currency was at ¥102.00 from ¥101.87.
The dollar was at 0.9297 franc from 0.9315 franc and was at ¥77.78 from ¥77.86.
The U.K. pound was at $1.5669 compared with $1.5658. The ICE Dollar Index, which tracks the U.S. dollar against a basket of currencies, was at 79.679 from 79.876.
