BLBG:Euro Gains On Draghi Bond-Purchase Plan Speculation
The euro approached a two-week high against the yen 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 was within 0.4 percent of the strongest in two months versus the dollar 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. The euro pared gains as European stocks declined. Australia’s dollar climbed from a six-week low against the greenback after the Reserve Bank refrained from cutting the developed world’s highest benchmark rate.
There are growing “expectations for some kind of ECB bond- buying intervention,” said Eimear Daly, a currency analyst at Monex Europe in London. “Everyone is completely fixated on the bond-buying plan. That’s pushing the euro higher.”
The euro gained 0.2 percent to 98.72 yen as of 7:48 a.m. New York time after appreciating to 99.03 yen on Aug. 31, the strongest since Aug. 21. The single currency was little changed at $1.2590 after climbing to $1.2638 on Aug. 31, the highest since July 2. The yen fell 0.2 percent to 78.41 per dollar.
Purchasing short-maturity bonds doesn’t constitute state financing, Draghi said at a closed-door parliamentary session in Brussels, Gauzes told reporters. Gauzes released a statement later saying Draghi hadn’t set out any future ECB operation. 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 Stoxx Europe 600 Index (SXXP) of shares fell 0.6 percent.
The euro has dropped 4.1 percent this year, the worst performance among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen declined 3.1 percent, and the dollar weakened 1 percent.
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.
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.
Debt Purchases
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.”
The so-called Aussie rose against the yen after the central bank kept its overnight cash-rate target at 3.5 percent.
The Australian 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.
Australia’s currency rose 0.1 percent to $1.0252. It earlier fell to $1.0224, the weakest level since July 25. The Aussie appreciated 0.3 percent to 80.38 yen after sliding 0.9 percent yesterday.
To contact the reporters on this story: David Goodman in London at dgoodman28@bloomberg.net; Monami Yui in Tokyo at myui1@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
