Euro Rallies as Draghi Refrains From Added Measures; Yen Rises

The euro strengthened the most in two weeks against the dollar after European Central Bank President Mario Draghi refrained from signaling that additional measures were needed to boost the region’s recovery.

The 17-nation currency advanced versus all except two of its 16 major counterparts after Italian Prime Minister Enrico Letta won a confidence vote in parliament, avoiding the need for another election. The yen rose for a second day against the dollar as U.S. lawmakers made no progress toward resolving a partial government shutdown and an industry report showed American companies added fewer workers than economists forecast. Australia’s dollar fell as the nation reported a trade deficit.

“It doesn’t seem like there’s any action imminent, even though he did mention that all options are on the table,” Eric Viloria, senior currency strategist for Gain Capital Group LLC in New York, said in a telephone interview, referring to Draghi and the ECB. “We had a weaker-than-expected ADP number out of the U.S. and that just reinforced the Fed’s decision to delay tapering.”

The euro advanced 0.4 percent to $1.3579 at 5 p.m. in New York, reaching the biggest one-day gain since Sept. 18. The single currency was 0.3 percent weaker at 132.20 yen after falling as much as 0.9 percent. The yen strengthened 0.7 percent to 97.36 per dollar.

Rand, Real

South Africa’s currency rallied against the dollar. The nation’s bonds fell for a second day, driving yields to two-week highs, on speculation slowing growth is limiting the Reserve Bank’s room to combat rising prices. The rand gained 1.1 percent to 10.0168 per dollar.

Brazil’s real rose to a one-week high on speculation the Federal Reserve will sustain a stimulus program that has supported emerging-market assets. The currency appreciated 1.1 percent to 2.1917 per dollar.

Draghi spoke in Paris after the ECB’s Governing Council left its main refinancing rate at a record low of 0.5 percent for a fifth month. The decision was predicted by all 52 economists in a Bloomberg News survey.

“Real GDP growth in the second quarter was positive, after six quarters of negative output growth, and confidence indicators up to September confirm the expected gradual improvement in economic activity from low levels,” Draghi said. “The overall improvements in financial markets seen since last summer appear to be gradually working their way through to the real economy.”

The ECB kept its benchmark at 0.5 percent as predicted by all 52 economists in a Bloomberg News survey.

ECB Policy

“The fact that he isn’t taking action today is propelling euro-dollar higher,” said Jane Foley, senior currency strategist at Rabobank International in London. “If Draghi was to play a key policy card today it could be lost against the tide of dollar weakness.”

The euro was also boosted after former premier Italian Silvio Berlusconi backtracked on a pledge to bring down the government as his own party showed signs of deserting him.

Letta’s government had teetered on the verge of collapse after Berlusconi’s decision last week to withdraw support for the coalition, prompting the prime minister to call the ballot.

The euro has strengthened 5.6 percent this year, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar appreciated 2.3 percent, while the yen tumbled 10 percent.

Yen Strength

The yen rose versus most its 16 major peers after U.S. Treasury Secretary Jacob J. Lew said yesterday the nation has begun using final extraordinary measures to avoid breaching the debt limit, spurring demand for the safety of Japan’s currency.

U.S. companies hired 166,000 workers last month following a revised 159,000 increase in August that was smaller than initially estimated, according to the ADP Research Institute. The median forecast of economists surveyed by Bloomberg was for an advance of 180,000.

The yen was also supported after Japanese Prime Minister Shinzo Abe yesterday introduced tax breaks for companies together with a 5-trillion-yen ($50 billion) program to boost growth.

“Up until Abe’s speech yesterday, the markets were a bit cautious of selling the dollar ahead of that event,” said Derek Halpenny, European head of global-markets research at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “The Congress was a dollar-sell story, but the event risk in terms of the Abe speech made the markets a little bit cautious and we’ve now had that removed.”

Currency Forecast

The yen will weaken to 103 per dollar by year-end, Halpenny said. Japan’s currency will trade at 102 by Dec. 31 and 105 by the middle of 2014, according to the median estimate of forecasts compiled by Bloomberg.

Australia’s currency fell versus most its 16 major peers after reports showed the nation had a trade deficit in August and building approvals climbed less than economists forecast. The Aussie advanced yesterday after the Reserve Bank of Australia kept borrowing costs unchanged.

“The economy is still going to need to do more work and that’s where the RBA has to come into the equation with additional interest-rate cuts,” said Jonathan Cavenagh, a currency strategist at Westpac Banking Corp. in Singapore. “That’s got to probably weigh on Aussie-dollar sentiment.”

The Australian dollar declined 0.1 percent to 93.85 U.S. cents after climbing to 94.35 yesterday, the strongest level since Sept. 23.

Trading in over-the-counter foreign-exchange options totaled $29 billion, compared with $22 billion yesterday, according to data reported by U.S. banks to the Depository Trust Clearing Corp. and tracked by Bloomberg. Volume in options on the dollar-yen exchange rate amounted to $8.3 billion, the largest share of trades at 28 percent. Options on the euro-dollar rate totaled $3.8 billion, or 13 percent.

Dollar-yen options trading was 85 percent more than the average for the past five Wednesdays at a similar time in the day, according to Bloomberg analysis. Euro-dollar options trading was 6 percent more than average.

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