Greenback reclaims multi-year high against the Japanese yen
By Deborah Levine and Sarah Turner, MarketWatch
SAN FRANCISCO (MarketWatch) — The dollar lost ground against the euro on Thursday after European Central Bank President Mario Draghi said the decision to keep interest rates steady was unanimous, reducing expectations that a rate cut will be coming soon.
The ICE dollar index DXY -0.75% , which measures the greenback against a basket of six major currencies, fell to 79.977 from 80.514 in late North American trading on Wednesday.
Draghi held a press conference after his prepared comments.
Get a running update on Draghi’s remarks.
The euro EURUSD +0.98% turned up to $1.3196 from $1.3065.
Against the Japanese yen, the shared currency EURJPY +1.31% also hit its highest level since last summer, buying ÂĄ116.45, up from ÂĄ114.78 late Wednesday.
Various surveys of economists from Dow Jones Newswires and others showed a handful of ECB watchers expected the institution to cut interest rates, after last month’s rate decision wasn’t unanimous. Read: ECB leaves rates unchanged.
“We would take away from Draghi’s comments that the bar to another rate cut is higher than seemed to be the case last month,” said Marc Chandler, global head of currency strategy at Brown Brothers Harriman.
Lower benchmark interest rates tend to make a country’s currency less appealing because it tends to depress yields on the country’s (or in this case, region’s) sovereign bonds. Differences between central bank rates tends to be a key determinant for currency trading, and that was particularly the case before the U.S. credit crisis made risk appetite and equities more important.
As for the euro, “we look for a retest on the $1.33 high seen in mid-December and again at the start of the year,” Chandler said. “If improved financial conditions do not lead to improvement in the real economy, a rate cut expectations may return, but this now seems like a second-quarter potential, not first quarter. Read earlier report: 3 reasons the ECB won’t cut and 1 reason it might
Separately, the Bank of England met and made no major changes to their monetary policies. The British pound GBPUSD +0.42% rose to $1.6093, from $1.6034 Wednesday.
Japanese yen
Against the yen, dollar made further headway Thursday, prompting one broker to sharply lift its target for the currency pair. The greenback is near its strongest level since mid-2010.
The dollar USDJPY +0.31% bought ÂĄ88.22, up from ÂĄ87.78 in late North American trading on Wednesday.
After a brief bout of weakness earlier in the week, the dollar found fresh legs during Asia trading hours on Wednesday, continuing along a path that has seen the yen fall sharply since October.
That weakness in the yen has been prompted by expectations that Japan’s new government will prod the country’s central bank into fresh easing measures to help the ailing Japanese economy.
“It is clear that the Japanese authorities have a fresh determinism to weaken the Japanese yen,” said Mitul Kotecha at Credit Agricole.
Kotecha referenced recent news that Japan has purchased bonds issued by the European Stability Mechanism and reports of ongoing pressure on the Bank of Japan to implement a 2% inflation target as fresh signs that Tokyo is serious about weakening the currency.
“Reflecting these factors and the higher starting point for [the dollar against the yen], we have revised our forecasts and now look for the currency pair to end 2013 at ¥92.00 versus ¥85.00 previously,” he said.
Still, the path toward that level may not be smooth.
The yen’s drop against the U.S. dollar since October “looks excessive,” Kotecha said, “especially as it has largely been driven by expectations rather than actual policy change. There is scope for disappointment should policy be less aggressive than hoped for.”
The Australian dollar AUDUSD +0.59% reached $1.0576, up from $1.0518 in late trading Wednesday, boosted by the release Thursday of much stronger-than-expected trade data from key trading partner China. Read: China’s exports soar, as trade surplus balloons
Deborah Levine is a MarketWatch reporter, based in San Francisco. Follow her on Twitter @dlevineMW.
Sarah Turner is MarketWatch's bureau chief in Sydney. Follow her on Twitter @SarahTurnerMKTW.
