BLBG:Euro Trades Near Two-Month High On ECB Bond-Buying Plan
The euro approached a two-month high against the dollar on speculation the European Central Bank will today announce unlimited, sterilized bond buying to help contain the region’s debt crisis.
The 17-nation currency headed toward the strongest in two weeks versus the yen after two central bank officials said ECB President Mario Draghi favored such a plan. Switzerland’s franc dropped to a one-month low against the euro amid speculation the central bank will shift its cap on the exchange rate to weaken the currency. Sweden’s krona declined after the central bank cut interest rates.
“There’s a lot in the mix today but it is really the conditionality that the market will be looking for” from the ECB, David Bloom, head of currency strategy at HSBC Holdings Plc in London, said on Bloomberg Television’s “Countdown” with Linzie Janis. “If the market goes risk on and people think the break up premium in the euro disappears, it could easily go back up to $1.30” in coming weeks, he said.
The euro strengthened 0.1 percent to $1.2613 at 8:56 a.m. London time after rising to $1.2638 on Aug. 31, the strongest since July 2. The shared currency rose 0.2 percent to 98.92 yen. It climbed to 99.03 on Aug. 31, the highest since Aug. 21. The yen was little changed at 78.42 per dollar.
Bond Buying
Under the ECB blueprint, which may be called “Monetary Outright Transactions,” the ECB would refrain from setting a public cap on yields, according to the central bankers who spoke on condition of anonymity. The plan will only focus on government bonds rather than a broader range of assets and will target maturities of up to about three years, the people said.
The purchases of government debt will be matched by the ECB’s removal of an equivalent amount of money from elsewhere in the system to assuage concerns about printing money, two central bank officials briefed on the plan said.
Draghi is due to speak at a press conference after the ECB’s Governing Council meeting in Frankfurt.
German Chancellor Angela Merkel told lawmakers yesterday she can accept temporary ECB bond buying, according to a member of her party. German legislator Norbert Barthle said in Berlin that Merkel spoke in a closed-door meeting of Christian Democratic Union lawmakers. Germany’s Constitutional Court is set to rule on Sept. 12 on the legality of the European Stability Mechanism, the euro region’s permanent bailout fund.
‘Remain Solid’
“Should the ECB deliver on what has been leaked about the bond-purchase program, the euro may rise,” said Kengo Suzuki, a currency strategist at Mizuho Securities Co. in Tokyo. “The euro will remain solid on heightened expectations.”
The single currency has gained 0.8 percent in the past week, the best performer of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen rose 0.1 percent, while the dollar declined 0.2 percent.
The Swiss franc fell 0.2 percent to 1.2060 per euro after sliding to 1.2063, the weakest since Aug. 6. The currency was little changed at 95.60 centimes per dollar.
The Swiss National Bank set its limit for the franc at 1.20 per euro a year ago to protect the economy.
“Speculation has been rife in the last 24 hours of a lift in the floor to around 1.22” francs per euro, Sue Trinh, a senior currency strategist at Royal Bank of Canada in Hong Kong, wrote in a note to clients today. The franc is “vulnerable to a selloff back to 1.201 should the rumors, speculation prove unfounded,” she wrote.
SNB spokesman Walter Meier declined to comment when called by Bloomberg News.
Krona Drops
The Swedish krona dropped against all 16 of its major counterparts after the Riksbank cut its benchmark interest rate for the first time since February.
The repo rate was lowered by a quarter point to 1.25 percent, the Stockholm-based central bank said today. The Riksbank said the rate is expected to remain unchanged “until the middle of next year.”
The krona fell 0.4 percent to 8.5148 per euro, and slid 0.3 percent to 6.782 per dollar.
Australia’s dollar strengthened for the first time in four days versus the greenback after a report showed unemployment declined in August.
The unemployment rate fell to 5.1 percent from 5.2 percent in July, the government said. The median estimate of economists in a Bloomberg News survey was for an increase to 5.3 percent.
“It’s a knee-jerk reaction to the unemployment rate,” said Sean Callow, a senior currency strategist at Westpac Banking Corp. in Sydney. “The market is taking this as a small positive.”
The Australian dollar gained 0.5 percent to $1.0243, and advanced 0.5 percent to 80.34 yen.
To contact the reporters on this story: Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net; David Goodman in London at dgoodman28@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
