BLBG: Euro Rises Versus Japanese Yen Before ECB Interest-Rate Meeting
The euro rose against the yen before a European Central Bank meeting at which policy makers may avoid cutting interest rates and expanding asset purchases.
The yen fell versus the dollar as gains in stocks fueled appetite for higher-risk assets and a report showed Japanese investors increased purchases of overseas bonds to the most in a month. The Swedish krona rebounded from near a six-week low against the euro after Latvia said it will keep its currency peg. The pound advanced against the dollar and the euro as the Bank of England left its key interest-rate and asset-buying program unchanged and data showed a jump in house prices.
“European equities and U.S. futures are heading higher, signaling risk appetite is once again picking up,” said Michael Klawitter, a foreign-exchange strategist in Frankfurt at Commerzbank AG. That’s “providing support” for the euro.
The euro rose to 136.66 yen as of 12:19 p.m. in London, from 135.93 in New York yesterday. The Japanese currency weakened to 96.62 per dollar from 95.99. The euro was at $1.4139, from $1.4162.
The ECB will neither reduce its main refinancing rate nor expand a plan to buy the 60 billion euros ($85 billion) of covered bonds it has already announced, economists said. The Frankfurt-based ECB’s decision is scheduled for 1:45 p.m. local time. Central bank President Jean-Claude Trichet will give a press conference 45 minutes later.
“Express Dissatisfaction’
The euro gained almost 5.7 percent against the dollar since the ECB last met on May 7 as signs the worst of the recession has passed damped demand for the U.S. currency as a refuge. It appreciated 3.1 percent against the yen.
“There will inevitably be a question on the scale of euro appreciation since the last meeting,” Derek Halpenny, a strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London, wrote today. “No doubt, ECB President Trichet will highlight the move as a dollar move. Still, there is a high possibility that Trichet expresses some form of dissatisfaction.”
The yen dropped versus 15 of the 16 most-traded currencies after Japan’s Ministry of Finance said domestic investors bought about $10.2 billion more overseas bonds than they sold last week. The Dow Jones Stoxx 600 Index of European shares added 0.4 percent, while the FTSE 100 Index of U.K. shares declined 0.2 percent. Futures on the Standard & Poor’s 500 Index of U.S. shares rose 0.3 percent.
“Japanese investors are beginning to get an appetite for foreign investment, which is weighing on the yen,” said David Forrester, a strategist in Singapore at Barclays Capital, a unit of the U.K.’s third-biggest bank. “They will continue to increase their exporting of capital and we expect the yen to be one of the worst performers in the next six months.”
Krona Rebounds
The Swedish krona rose after Latvia’s central bank said it will maintain the lats peg to the euro until the country adopts the single currency. The bank has responsibility for the lats exchange rate, it added.
Sweden’s Riksbank this week noted a deterioration in the Baltic nations as one of the biggest risks to its banks. The krona fell 2.5 percent against the euro since June 1, when the Baltic News Service cited Latvian Justice Minister Mareks Seglins as saying the government should debate abandoning the system that keeps the lats pegged to the 16-nation currency.
The krona strengthened to 10.7967 per euro from 10.9043 yesterday, after slipping to 10.9842 earlier, the lowest level since April 23. It traded at 7.6326 per dollar, from 7.6992.
Rating Confidence
Former Swedish central bank governor Bengt Dennis, hired by the Latvian government as an adviser to help it cope with the economic crisis, told Swedish state television SVT on June 1 the Baltic country will need to devalue the currency. Swedish banks have about $75 billion in loans to the Baltic states, according to the Bank for International Settlements in Basel, Switzerland.
The dollar strengthened against the yen after Fitch Ratings reiterated its confidence in the U.S. and U.K.’s top credit grades, citing the countries’ fiscal strength.
“Our confidence in their ability and track record to do the right thing” makes the U.S. and the U.K. AAA-rated borrowers, David Riley, head of sovereign ratings at Fitch, said at a conference in Sydney today.
The dollar completed the biggest weekly decline in two months versus the euro on May 22 after Pacific Investment Management Co.’s Bill Gross said the previous day that the U.S. will “eventually” lose its top credit rating. Standard & Poor’s that day lowered the outlook on Britain’s AAA grade to “negative,” citing the government’s deteriorating finances.
Remove ‘Stumbling Block’
“The rating comments today helped remove a stumbling block on currencies such as the dollar and euro, which faced concerns over rating downgrades,” said Takeshi Makita, a Tokyo-based economist at Japan Research Institute Ltd., a unit of Japan’s third-largest lender, Sumitomo Mitsui Financial Group Inc. “These currencies may gain further momentum.”
The pound rose against the dollar after the Bank of England kept its main interest rate at 0.5 percent and said it will refrain from increasing gilt purchases beyond the 125 billion pounds ($205 billion) already announced amid signs of an economic recovery. A Halifax report today showed home values unexpectedly rose 2.6 percent in May, the most since 2002.
The Dollar Index was little changed, after posting its biggest gain in more than four months yesterday, when Federal Reserve Chairman Ben S. Bernanke told the House Budget Committee in Washington the central bank won’t finance government spending over the long term.
“Bernanke told Congress that the Fed won’t accommodate wider budget deficits by simply printing money, clearly attempting to reassure foreign investors worried about the U.S. dollar’s safe-haven status,” John Kyriakopoulos, Sydney-based head of currency strategy at National Australia Bank Ltd. wrote in a research report.
The Dollar Index, used by the ICE to track the greenback against the euro, yen, pound, Swiss franc, Canadian dollar and Swedish krona, was at 79.452, from 79.500 yesterday, when it climbed 1.4 percent, the biggest gain since Jan. 20.
