BLBG:Euro Gains for Sixth Day Versus Yen Before ECB; Volatility Wanes
The euro rose for a sixth day against the yen, the longest run of gains since March, before European Central Bank officials announce their monthly policy decision.
The single currency appreciated against all but two of its 16 major counterparts on speculation ECB President Mario Draghi will provide more detail of the bond-purchase program announced last month. The yen fell to a two-week low versus the dollar as the Bank of Japan started a two-day meeting. Currency price swings as measured by the JPMorgan G7 Volatility Index fell to the lowest level in almost five years. A gauge of Asia’s most active currencies reached a seven-month high.
“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 0.4 percent to 101.74 yen at 12:02 p.m. London time after rising to 101.82, the strongest level since Sept. 24. The common currency gained 0.3 percent to $1.2947. The yen dropped 0.1 percent to 78.57 per dollar after depreciating to 78.72, the weakest since Sept. 19.
The ECB will keep its benchmark interest rate at a record- low 0.75 percent, according to Bloomberg News survey of economists. President Mario Draghi unveiled a program of unlimited bond purchases last month to ease borrowing costs for debt-ridden nations, spurring a rally in the shared currency.
Spanish Aid
Spain sold two-, three- and five-year notes today as investors weigh 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 1.6 percent.
Lower Volatility
Price swings in major currencies waned before the ECB and the U.K.’s Bank of England hold policy meetings. The JPMorgan G7 Volatility Index dropped 0.04 percentage point to 7.72 percent, the lowest level since October 2007.
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.”
The pound held gains 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 left its main interest rate at a record-low 0.5 percent.
The U.K. currency appreciated 0.3 percent to $1.6116, and was little changed at 80.35 pence per euro.
Yen Weakens
The yen weakened against all except one of its 16 major counterparts.
Reports from Japan 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.
The Bloomberg-JPMorgan Asia Dollar Index, which tracks the region’s most-active currencies, gained 0.1 percent to 117.08 after rising to 117.43, the highest since March.
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 0.1 percent to 1.8066 per dollar, after sliding 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
