BLBG:Yen Strengthens as ECB Speculation Spurs Safety Bid; Pound Jumps
The yen advanced to the strongest in three weeks against the euro as traders sought Japan’s currency as a haven amid speculation the European Central Bank will announce additional stimulus this week amid waning growth.
Japan’s currency appreciated versus all except one of its 16 major counterparts as ECB President Mario Draghi prepares to speak today in Frankfurt before officials announce their next policy decision on Thursday. Australia’s dollar fell the most in a week after the nation’s Reserve Bank said the currency is “uncomfortably high.” The pound strengthened after U.K. services growth accelerated to the fastest in 16 years.
“The closer we come to the ECB decision the more risk-off sentiment dominates,” said Ulrich Leuchtmann, head of currency strategy at Commerzbank AG in Frankfurt. “The weaker Aussie dollar normally goes in line with a stronger yen so that is also what the market is reacting to at the moment.”
The yen rose 0.5 percent to 132.55 per euro at 10:39 a.m. London time after appreciating to 132.37, the strongest level since Oct. 10. Japan’s currency gained 0.4 percent to 98.24 per dollar. The euro dropped 0.2 percent to $1.3493 after sliding to $1.3442 yesterday, the weakest since Sept. 18.
Bank of America Corp., Nordea Markets, Royal Bank of Scotland Group Plc and UBS AG have all predicted in the past week that the ECB will cut its benchmark main refinancing rate on Nov. 7. The other 66 of 70 economists surveyed by Bloomberg forecast policy makers will leave borrowing costs unchanged.
Lower Forecasts
The European Union cut its forecast for the region’s growth next year to 1.1 percent, less than the 1.2 percent estimated in May. Unemployment, now at the highest rate since the euro was introduced, will be at 12.2 percent in 2014, versus the 12.1 percent predicted six months ago, the commission said.
The euro fell 1.3 percent in the past week, the worst performer after Sweden’s krona of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes, after a report on Oct. 31 showed the region’s annual inflation rate unexpectedly fell last month. The dollar gained 0.7 percent and the yen rose 0.6 percent.
“Most people are focusing on the ECB meeting, given the weakness in recent data coming out from Europe, particularly the low inflation print,” said Khoon Goh, a senior currency strategist at Australia & New Zealand Banking Group Ltd. in Singapore. “The market is ascribing a chance of a potential rate cut from the ECB, so that’s seen the euro come off.”
Aussie Slides
The Australian dollar fell against 12 of its 16 major peers after the Reserve Bank kept its benchmark interest rate at a record-low 2.5 percent and signaled concern that currency strength will undermine the recovery.
“The Australian dollar, while below its level earlier in the year, is still uncomfortably high,” Governor Glenn Stevens said in a statement. “A lower level of the exchange rate is likely to be needed to achieve balanced growth.”
Australia’s dollar dropped 0.2 percent to 94.94 U.S. cents after depreciating to 94.22 cents on Nov. 1, the lowest level since Oct. 14.
The pound rose for a fifth day versus the euro after Markit Economics said its gauge of services activity climbed to 62.5 last month, the highest level since May 1997. The gauge has been above the 50 level that indicates growth for 10 months.
“This underlines the resilience of the U.K. economy,” said Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce in London. “This is supportive for sterling. It makes sense to sell the euro against the pound.”
Sterling jumped 0.6 percent to 84.10 pence per euro after appreciating to 84.03 pence, the strongest level since Oct. 3. The U.K. currency rose 0.5 percent to $1.6047.
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
