BS: Euro Strengthens for Sixth Day Against Yen Before Draghi Speaks
The euro rose for a sixth day against the yen, the longest run of gains since March, on speculation European Central Bank President Mario Draghi will today provide more detail of the bond-purchase program announced last month.
The single currency gained versus all but two of its 16 major counterparts after the ECB kept its benchmark interest rate at a record-low 0.75 percent after a policy meeting today. The yen fell to a two-week low versus the dollar as the Bank of Japan started a two-day meeting. A measure of volatility among major currencies fell to the lowest level in almost five years.
“There are some hopes that we might get some clarification on what the ECB means by the conditionality in its bond-purchase program,” said Lutz Karpowitz, a senior foreign-exchange strategist at Commerzbank AG in Frankfurt. “It might end up in disappointment. This recovery we see in the euro might be not very long lasting.”
The euro advanced 0.6 percent to 101.86 yen at 1:01 p.m. London time after rising to 101.95, the strongest level since Sept. 21. The common currency gained 0.3 percent to $1.2948. The yen fell 0.2 percent to 78.65 per dollar after depreciating to 78.72, the weakest since Sept. 19.
The ECB’s decision was forecast by 48 of 52 economists surveyed by Bloomberg, with four predicting a 25 basis-point cut. Draghi will speak at a news conference to explain the decision at 2:30 p.m. in Ljubljana, Slovenia. At last month’s conference he unveiled a program of unlimited bond purchases to contain borrowing costs for debt-ridden nations, spurring a rally in the euro.
Spanish Aid
Spain sold two-, three- and five-year notes today as investors weighed whether the nation will ask for an international bailout. Prime Minister Mariano Rajoy this week denied he has immediate plans to seek assistance.
German Economy Minister Philipp Roesler would support a potential request by Spain for a bailout, Handelsblatt reported yesterday, citing an interview.
“People are a little bit more confident that the situation in Spain may be a little bit clearer than it has been up to this point and we’re edging towards a bailout, which reduces the near-term risks around the euro,” said Paul Robson, a senior foreign-exchange strategist at Royal Bank of Scotland Group Plc in London.
The euro gained 1.9 percent in the past month, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The dollar declined 1.4 percent and the yen fell 1.7 percent.
Lower Volatility
Commerzbank’s Karpowitz forecasts the euro will end the year at about $1.23, even if Spain requests financial support, as “it will turn out that the bond purchases are not the game changer that a lot of market participants think they are.”
Price swings in major currencies waned, with the JPMorgan G7 Volatility Index dropping as much as 0.04 percentage point to 7.72 percent, the lowest level since October 2007.
The pound rose versus the dollar as the Bank of England left its asset-purchase target at 375 billion pounds ($604 billion) at its monthly gathering. The central bank kept its main interest rate at a record-low 0.5 percent.
Sterling appreciated 0.2 percent to $1.6113, and was little changed at 80.39 pence per euro.
Yen Weakens
The yen fell versus all except one of its 16 major peers before the BOJ announces it policy decision tomorrow.
Japanese reports over the past week have added to the case for the central bank to expand stimulus to boost growth and achieve its 1 percent inflation goal. Consumer prices in August matched the steepest decline in 16 months and the nation’s biggest manufacturers grew more pessimistic last quarter.
The BOJ increased its asset-purchase program by 10 trillion yen to 55 trillion yen at its previous meeting on Sept. 19, saying the economy’s pick-up was slowing.
Turkey’s lira dropped to a three-week low against the dollar as parliament debated a motion allowing the government to order military action in Syria, after a mortar bomb fired across the border killed five Turks.
The lira fell less than 0.1 percent to 1.8053 per dollar, after declining to 1.8112, the weakest since Sept. 13.
To contact the reporter on this story: Lucy Meakin in London at lmeakin1@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
