BLBG:Euro Gains On Draghi Bond-Purchase Plan Speculation
The euro rose for a third day versus the dollar on speculation European Central Bank President Mario Draghi will announce a plan to buy bonds of the region’s debt- saddled nations, boosting confidence in the currency.
The 17-nation euro approached a two-week high against the yen after Jean-Paul Gauzes, a member of the European Parliament, said yesterday Draghi told lawmakers he would be comfortable purchasing debt with maturities of up to about three years. Australia’s dollar strengthened after the Reserve Bank refrained from cutting the developed world’s highest benchmark rate at a policy meeting today.
The comments are “driving expectations for some kind of ECB bond-buying intervention,” said Eimear Daly, a foreign- exchange analyst at Monex Europe in London. “Everyone is completely fixated on the bond-buying plan. That’s pushing the euro higher.”
The euro advanced 0.2 percent to $1.2617 at 9:10 a.m. London time after rising to $1.2638 on Aug. 31, the highest since July 2. The common currency rose 0.4 percent to 98.94 yen. It appreciated to 99.03 yen on Aug. 31, the strongest since Aug. 21. The yen fell 0.2 percent to 78.42 per dollar.
Purchasing short-maturity bonds doesn’t constitute state financing, Draghi said during a closed-door parliamentary session in Brussels yesterday, Gauzes told reporters afterwards. Gauzes released a statement later saying that Draghi hadn’t set out any future ECB operation on bond markets. The ECB announces it next policy decision on Sept. 6.
Short Covering
“There may be some short-covering of the euro amid growing expectations that the ECB will start a bond-buying program,” said Akira Moroga, manager of the foreign-exchange product group at Aozora Bank Ltd. in Tokyo. Short-covering is when investors end bets an asset will decline.
The shared currency appreciated versus 11 of its 16 major counterparts before European Union President Herman Van Rompuy meets with German Chancellor Angela Merkel today in Berlin, and Italian Prime Minister Mario Monti welcomes French President Francois Hollande to Rome.
Traders and strategists are more divided than at any time since 2011 over whether officials will be able to keep the currency from tumbling, according to data compiled by Bloomberg.
The euro has dropped 4 percent this year, the worst performance among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen declined 3.3 percent, while the dollar weakened 1.1 percent.
Currency Debasement
At about $1.26, the euro is 3.3 percent above the $1.22 median year-end estimate of more than 50 analysts, after the gap expanded to 3.8 percent last week. The last time the euro exceeded the consensus by that much was in July 2011, and it tumbled 9.4 percent in the next 10 weeks.
While traders are optimistic about Draghi’s bond-purchase plan, analysts said those same measures are more likely to debase the currency. After the ECB meets this week, Germany’s Constitutional Court will rule on the legality of a bailout fund, Greece’s institutional creditors will decide if the country merits access to aid that would help it stay in the EU, and Dutch citizens get to vote on parties including a group that wants to exit the bloc.
“The ECB’s approach is obviously an easing approach,” Hans Redeker, head of currency strategy at Morgan Stanley in London, said in a telephone interview on Aug. 28. “The central bank is printing money and increasing the supply of euros, and this implies that the currency will stay weak.”
EU Outlook
The European Union’s rating outlook was cut to negative by Moody’s Investors Service yesterday, reflecting the risks to Germany, France, the U.K. and the Netherlands that account for about 45 percent of the group’s budget revenue.
The Australian dollar climbed from an almost six-week low against the greenback after the central bank kept its overnight cash-rate target at 3.5 percent.
The economy expanded 0.7 percent in the second quarter from the previous three months for the strongest first half of growth since 2007, a Bloomberg News survey showed before a government report tomorrow.
“The RBA is waiting and is on pause for now, which could be one of the reasons why market players are buying back the Aussie a bit,” said Lee Wai Tuck, a currency strategist at Forecast Pte in Singapore.
The so-called Aussie gained 0.2 percent to $1.0269 after falling to $1.0224, the weakest level since July 25.
The U.S. currency dropped against all except three of its 16 major peers before data that economists said will show U.S. factory activity stalled in August.
The Institute for Supply Management’s manufacturing index was at 50 last month, according to economists surveyed by Bloomberg before the Tempe, Arizona-based group releases the data. It was at 49.8 in July, below the level of 50 that marks the dividing line between expansion and contraction.
The Dollar Index (DXY), which IntercontinentalExchange Inc. uses to track the U.S. currency against those of six major trading partners, fell 0.1 percent to 81.108.
To contact the reporters on this story: Monami Yui in Tokyo at myui1@bloomberg.net; David Goodman in London at dgoodman28@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
