The euro rose from its lowest in almost a year as speculation cooled that that the European Central Bank will add further monetary stimulus when it meets next week.
The 18-nation currency gained for the first time in four days versus the dollar after a Reuters report citing unidentified ECB sources said the central bank is unlikely to add stimulus unless an August inflation report raises the risk of deflation. Germany’s finance minister Wolfgang Schaeuble said yesterday that comments by ECB President Mario Draghi advocating support for euro-zone fiscal policy were “over-interpreted.” South Africa’s rand rose to the highest this year verus the euro, while the New Zealand dollar rallied.
“The euro is retracing some of Friday and Monday’s move lower,” said Richard Franulovich, the chief currency strategist for the northern hemisphere at Westpac Banking Corp. in New York. “That was after Draghi set those expectations at Jackson Hole. We’re now seeing the somewhat inevitable pushback.” Draghi spoke in Jackson Hole, Wyoming, on Aug. 22.
The euro strengthened 0.2 percent to $1.3193 as of 5 p.m. in New York after falling to $1.3153, the lowest level since Sept. 6. The common currency was little changed at 137.05 yen. The dollar weakened 0.2 percent to 103.88 yen after completing a seven-day advance yesterday that was the longest stretch of gains since July.
The Bloomberg Dollar Spot Index, which tracks the greenback versus 10 leading global peers, fell 0.3 percent to 1,027.82 after rising to as high as 1,031.86 yesterday, the most since Feb. 3.
New Zealand’s dollar gained versus most of its 16 major peers after Fonterra Cooperative Group Ltd., the world’s largest dairy exporter, maintained its milk-price forecast. Dairy products account for almost a third of the nation’s exports.
“The market’s been a little bit nervous about the Fonterra announcement,” said Sue Trinh, a senior currency strategist at Royal Bank of Canada in Hong Kong. “It’s a bit of a relief rally for the kiwi that the forecast payout wasn’t cut.”
The New Zealand dollar climbed 0.5 percent to 83.74 U.S. cents after falling the previous two days. The currency has declined 4.4 percent since the end of June, the most among the greenback’s 16 major counterparts.
The Canadian dollar gained a second day after Burger King Worldwide Inc. agreed to buy Tim Hortons Inc. to create the third-biggest fast-food company for about C$12.5 billion ($11.4 billion).
“M&A and the idea of capital flows are obviously something that will always impact the currency markets,” said Chris Weston, chief market strategist in Melbourne at IG Australia, a unit of IG Group Holdings Plc. “I wouldn’t be surprised by some Canadian dollar strength based on that.”
The loonie appreciated 0.8 percent to C$1.0865 versus its U.S. counterpart.
Turkey’s lira gained 0.5 percent after the nation’s central bank left its benchmark repurchase rate unchanged at 8.25 percent, as forecast by nine out of 16 economists in a Bloomberg survey. South Africa’s rand touched its strongest since December versus the euro.
Inflation expectations in the euro area have declined, Draghi said in his Aug. 22 speech. Policy makers “will use all the available instruments needed to ensure price stability over the medium term,” he said at a conference in Jackson Hole, Wyoming.
Draghi’s comments on possibly easing austerity policies have been “over-interpreted,” the German Finance Minister Wolfgang Schaeuble said in an interview in Passauer Neue Presse newspaper, published yesterday.
“In euro-dollar we have seen a bit of a bounce on the Schaeuble comments in the German press,” Jeremy Stretch, head of foreign-exchange strategy at Canadian Imperial Bank of Commerce in London. “Only something to shake the increasing confidence of the market that the ECB will do something next week seems likely to arrest the current downtrend in euro-dollar.”
The ECB is unlikely to undertake new policies next week unless a euro-area report on inflation released Aug. 29 show the euro zone moving significantly toward deflation, Reuters reported.
A preliminary reading of German inflation due tomorrow will show price gains stalled in August from the previous month, based on calculations using a harmonized European Union method. GfK’s gauge of German consumer confidence for September, released today, fell to the lowest since June.
“There are expectations that moves by the ECB will potentially add further downside momentum to the euro, but the fact is we’re in wait-and-see mode,” said Phyllis Papadavid, a senior global-currency strategist in London at BNP Paribas SA. “People are taking some of their positions off the table and taking profit.” BNP closed its short euro-dollar trade at $1.32 on Aug. 25.