Euro Rises Second Day Against Yen Before ECB Allots Loans; Aussie Advances

The euro strengthened for a second day against the yen on speculation the European Central Bank’s allotment of three-year loans to banks today will boost demand for the region’s assets.

The dollar declined against higher-yielding currencies before Federal Reserve Chairman Ben S. Bernanke testifies in Congress today after saying last month that policy makers are keeping open the option to boost bond purchases. Australia’s dollar advanced to a three-week high versus the greenback after a report showed consumer spending increased.

“The euro may not be the best currency out there because of risk, but price action suggests people believe liquidity measures by the ECB will support it,” said Peter Rosenstreich, chief currency strategist at Swissquote Bank SA in Geneva. The market consensus is that the ECB will give out between 350 billion euros to 550 billion euros of loans, and “if it goes above that, it will be good for risk appetite and euro assets.”

The euro gained 0.2 percent to 108.45 yen at 9:49 a.m. in London after rising to 109.93 yen on Feb. 27, the strongest since Oct. 31. The common currency was little changed at $1.3461 after climbing to $1.3487 on Feb. 24, the highest since December. The dollar was little changed at 80.57 yen.

Second Operation

The euro has appreciated 2.8 percent against the dollar this month as analysts forecast the ECB will grant the region’s banks 470 billion euros in its second longer-term refinancing operation, according to a Bloomberg News survey. The central bank lent a record 489 billion euros in its first refinancing operation on Dec. 21.

“If you get a good number, the euro will do well,” said Kurt Magnus, executive director of currency sales in Sydney at Nomura Holdings Inc. “It would provide a stimulus to risk currencies and risk itself.”

Gains in the euro were tempered after Ireland said it will hold a referendum on ratifying the European fiscal compact after government ministers sought to frame the campaign as a vote on the nation’s determination to keep the common currency.

Prime Minister Enda Kenny, speaking in the Dublin parliament yesterday, said the government will name a date for the ballot in the coming weeks.

The dollar weakened 0.6 percent against Taiwan’s currency, 0.6 percent versus New Zealand’s and 0.5 percent against the South Korean won.

‘Exceptionally Low’

Bernanke said last month the central bank is considering buying more bonds after policy makers extended their pledge to keep the benchmark interest rate at “exceptionally low levels” at least through late 2014. The Fed has engaged in two rounds of asset purchases, totaling $2.3 trillion in so-called quantitative easing.

The dollar has declined 3.8 percent in the past three months, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-market currencies. The yen lost 7.3 percent and the euro fell 2.8 percent.

Australia’s currency rose for a third day versus the U.S. dollar after a report showed retail sales advanced the most in four months in January.

Sales increased 0.3 percent from February when they declined 0.1 percent, the statistics bureau said.

The report “adds to the attractiveness of the Aussie in a risk-on world,” said Todd Elmer, head of Group-of-10 foreign- exchange strategy for Asia excluding Japan at Citigroup Inc. in Singapore.

The so-called Aussie rose 0.4 percent to $1.0811 after climbing to $1.0823, the strongest level since Feb. 9.

To contact the reporters on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net; Candice Zachariahs in Sydney at czachariahs2@bloomberg.net

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net

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