BLBG:Dollar, Yen Hold Drops Against Majors as ECB Plan Boosts Stocks
The dollar and the yen remained lower after dropping yesterday against most major peers as the European Central Bank’s announcement of a new bond-buying plan damped demand for haven assets and boosted equities.
The dollar held declines against higher-yielding currencies before the U.S. government releases its monthly jobs report. The euro traded near a two-month high after ECB President Mario Draghi said policy makers agreed to the unlimited purchase of government debt to reduce interest rates for struggling nations and help prevent a break-up of the European currency bloc.
“The markets turned risk-on after Draghi delivered what was expected,” said Marito Ueda, senior managing director in Tokyo at FX Prime Corp., a currency-margin company. “The dollar and yen are being sold.”
The dollar was little changed at $1.2640 per euro as of 6:35 a.m. in London from yesterday, when it touched $1.2652, the weakest since July 2. It has dropped 0.5 percent this week.
The yen lost 0.2 percent 99.76 per euro from yesterday, poised for a 1.2 percent decline since Aug. 31. It yesterday touched 99.81, the weakest since July 5. The Japanese currency fetched 78.92 per dollar from 78.86, set for a 0.7 percent weekly drop.
The MSCI Asia Pacific Index (MXAP) of stocks climbed 1.9 percent following a 1.9 percent gain in MSCI’s World Index (MXWO) yesterday.
ECB Plan
Draghi said yesterday the ECB will target government bonds with maturities of one to three years, including longer-dated debt that has a residual maturity of that length. Purchases will be fully sterilized, meaning the overall impact on the money supply will be neutral, and the ECB will not have seniority, he said. The central bank left its benchmark interest rate at 0.75 percent.
Spanish bonds rose yesterday, pushing the 10-year yield down 38 basis points, or 0.38 percentage point, to 6.03 percent, the lowest since June 11. Italian 10-year yields fell 25 basis points to 5.26 percent, the least since April 4.
“The ECB’s decision is likely to lend some support to the euro for a while,” said FX Prime’s Ueda.
The shared currency has strengthened 0.7 percent in the past week, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen declined 0.6 percent over the same period while the dollar added 0.2 percent.
Citigroup Inc., the third-biggest U.S. bank by assets, said in a note today it added short euro positions against the Australian and Canadian dollars. A short is a bet that an asset will decline in value.
The company targets A$1.16 per euro and C$1.215 per euro. The shared currency slid 0.3 percent to A$1.2244 per euro and was little changed at C$1.2404 per euro.
Jobs Market
The dollar fell against currencies linked to risk sentiment amid speculation U.S. data today may show jobs growth is too slow to lower the unemployment rate, bolstering the case for more monetary easing by the central bank. The Federal Reserve has already bought bonds in two rounds of quantitative easing, known as QE1 and QE2.
U.S. employers probably added 130,000 workers to payrolls last month, trailing the 163,000 increase in July, according to the median estimate of economists surveyed by Bloomberg News. The Labor Department releases its figures today. The jobless rate held steady at 8.3 percent, economists forecast.
Fed Chairman Ben S. Bernanke has said the lack of employment growth is a “grave concern.” The jobless rate has held above 8 percent since February 2009.
Better Indicators
Separate reports yesterday painted a more optimistic picture of the American jobs market. Initial unemployment claims decreased by 12,000 to 365,000 in the week ended Sept. 1, the Labor Department reported. Private employers expanded payrolls by 201,000 in August, according to figures from ADP Employer Services, exceeding the 140,000 median gain forecast by economists in a Bloomberg survey.
“There’s a good chance the Fed will announce QE3 this month,” said Noriaki Murao, a managing director in New York at Bank of Tokyo-Mitsubishi UFJ Ltd., a unit of Japan’s biggest financial group by market value. “With lingering expectations of Fed stimulus, the dollar would be on the back foot.”
The Dollar Index (DXY), which IntercontinentalExchange Inc. uses to track the greenback against those of six U.S. trading partners, was little changed at 81.11 after yesterday dropping 0.2 percent to 81.040. The index on Aug. 31 fell to 80.964, the lowest since May 22.
Technical Resistance
The U.S. currency is likely to be capped as it faces key resistance levels, according to Gaitame Online Co., citing trading patterns. Resistance refers to an area on a chart where sell orders may be clustered.
The greenback will probably be capped below 79.14 yen, the upper end of the so-called cloud on the daily Ichimoku chart, and 79.30 yen at its 200-day moving average, said Masakazu Sato, a Tokyo-based foreign-exchange advisor at Gaitame Online.
Gains in the 17-nation euro were limited on concern Europe is falling into a deeper recession. The ECB forecast euro-area gross domestic product will drop 0.4 percent this year instead of 0.1 percent predicted three months ago.
Economists estimate German exports, adjusted for work days and seasonal changes, fell 0.5 percent in July from the previous month. Imports probably fell by 0.3 percent. The Federal Statistics Office in Wiesbaden releases the data today.
“The German economy is deteriorating,” said Murao. “The euro may run out of steam given its poor economic fundamentals.”
To contact the reporters on this story: Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net; Monami Yui in Tokyo at myui1@bloomberg.net
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
