Yen Drops Most in 2 Months Versus Euro on Stimulus Wagers
The yen lost the most against the euro since February amid speculation the Bank of Japan (8301) will add further stimulus next week even as global growth accelerates.
Sterling had its biggest weekly gain versus the dollar in 15 months on bets the Bank of England may refrain from further monetary easing, while Brazil’s real slid as its central bank cut interest rates. The dollar fell against most major peers before the Federal Reserve begins a two-day policy meeting April 24. The euro rose amid stronger-than-forecast German data.
“We are expecting the Bank of Japan to take action next week, and further movements in the yen will depend how aggressive they are,” said Eric Viloria, senior currency strategist at Gain Capital Group LLC in New York. “It’s not going to have the same impact it did when they announced the inflation target and expanded stimulus by 10 trillion yen ($123 billion). Every time a bank takes action you see a diminishing impact on the currency.”
The yen dropped 1.9 percent to 107.79 per euro yesterday in New York in the biggest weekly loss since the five days ended Feb. 24. It touched an almost two-month high of 104.63 on April 16 before tumbling. The Japanese currency fell 0.7 percent versus the dollar, the most in a week since March 16, to 81.52.
Europe’s shared currency strengthened 1.1 percent to $1.3219, from $1.3078 on April 13, in its biggest jump in almost two months. The euro rallied this week after falling below $1.30 on April 16 for the first time since February as Spanish borrowing costs touched a 2012 high, fueling concern Europe’s sovereign-debt crisis was spreading.
‘Remarkably Good Shape’
The euro gained after the Bundesbank said April 17 the German economy, Europe’s largest, is in “remarkably good shape” and the ZEW Center for European Economic Research’s index of investor and analyst expectations rose to the highest since June 2010. The Munich-based Ifo institute’s gauge of German business confidence unexpectedly increased to 109.9 this month from 109.8 in March, data showed yesterday.
The 17-nation currency broke above its 50-day moving average against the dollar yesterday, touching its strongest level in two weeks, $1.3228, even as Spain’s 10-year yields reached above 6 percent. The debt touched 6.16 percent four days earlier, the highest since December. Prime Minister Mariano Rajoy is struggling to convince investors he can get Spain’s finances under control.
“When you get ongoing increases to German investor confidence, that is a greater barometer to the health of Europe than rising Spanish bond yields,” Andrew Wilkinson, chief economic strategist at Miller Tabak & Co. in New York, said on April 17.
The euro gained yesterday against the dollar and the yen as governments committed more than $430 billion in fresh money to the International Monetary Fund to help it protect the global economy against Europe’s debt turmoil.
The yen dropped against all of its 16 most-traded peers except the Brazilian real before the Bank of Japan meets on April 27. The bank is “committed” to monetary easing, Governor Masaaki Shirakawa said April 18 in a speech in New York. Deputy Governor Kiyohiko Nishimura said that day the BOJ is “committed to implementing additional easing measures, if deemed necessary.” He spoke in a speech in Okayama, western Japan.
Shirakawa and his board unexpectedly expanded bond purchases on Feb. 14 while setting a 1 percent inflation goal.
“Easing from the BOJ could come as soon as next week, or it could be two or three months out,” Aroop Chatterjee, a currency strategist at Barclays Plc in New York, said on April 19. “BoJ dovishness is here to stay, and they are the only major central bank that is continuing to ease.”
Brazil’s real was the biggest loser against the dollar this week after the central bank lowered its benchmark interest rate by three-quarters of a percentage point to 9 percent. It also signaled further rate cuts may be made because inflation risks “remain limited.”
The real tumbled 1.8 percent to 1.8724 per dollar. It touched 1.8935, the weakest level since November, on April 19.
Sterling gained after minutes of the Bank of England’s April meeting released this week showed policy maker Adam Posen ended his push for further stimulus. Posen joined the majority of the nine-member Monetary Policy Committee in seeking no change to the 325 billion-pound ($525 billion) asset-purchase target, minutes of the April 4-5 session showed.
The pound climbed 1.7 percent, the most since January 2011, to $1.6122. It gained 0.7 percent to 81.97 pence per euro.
The Canadian dollar had the biggest advance versus its U.S. counterpart in seven weeks. Policy makers said on April 17 an interest-rate increase “may become appropriate” as the economy recovers. The Bank of Canada also upgraded growth forecasts. The currency advanced 0.7 percent to 99.24 cents to the greenback.
The Dollar Index (DXY), which Intercontinental Exchange Inc. uses to measure the greenback against six major trading partners, fell 0.9 percent this week to 79.144.
Fed policy makers will hold their benchmark interest rate next week at zero to 0.25 percent, where it’s been since December 2008, according to all 75 economists in a Bloomberg News survey. At their last meeting on March 13, they signaled they would off on boosting stimulus unless the U.S. economic expansion faltered or inflation fell below a 2 percent target.
Futures traders raised bets the euro will decline against the dollar. Net-shorts for the euro rose to 118,125 in the five days ended April 17, the most since Feb. 21, from 101,364 a week earlier, Commodity Futures Trading Commission data showed.
The dollar climbed 4.3 percent over the past year against nine developed-nation counterparts monitored by Bloomberg Correlation-Weighted Indexes. The yen rose 4.1 percent, the biggest loser on the gauge, while the euro dropped 5.7 percent.
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