Euro Gains for Fifth Week on ECB Inflation Outlook; Aussie Rises

The euro rallied for a fifth week as European Central Bank President Maro Draghi said he expects inflation in the currency bloc to gradually rise, damping bets that policy makers would reduce the benchmark interest rate.

The Australian dollar reached a three-month high versus its U.S. counterpart on strengthening economic data. Russia’s ruble slumped for a fourth week against a basket of currencies as lawmakers signaled they’ll accept the accession of Crimea to the Russian Federation. The yuan posted its biggest gain against the greenback since October on speculation the central bank has ceased engineering a depreciation. The dollar rose the most versus the yen since July as U.S. jobs gains topped forecasts before the Bank of Japan holds a policy meeting March 11.

“A surprising number of analysts were looking for the ECB to do something this week, the reaction has been to see a bit of a snapback for the euro,” Robert Sinche, global strategist at Stamford, Connecticut-based Pierpont Securities LLC said yesterday in an interview on Bloomberg Radio’s “Surveillance” with Tom Keene and Michael McKee. “It’s a bit overdone. It’s a good level to be buying dollar. But so far, the market has gone the other way.”

The 18-nation euro appreciated 0.5 percent this week to $1.3875 in New York after touching $1.3915, its strongest level since October 2011. Europe’s shared currency gained 2 percent to 143.33 yen while the dollar advanced 1.5 percent to 103.28 yen.

Winning Aussie

Hedge funds and other large speculators increased their bets that the euro will rise against the dollar, figures from the Washington-based Commodity Futures Trading Commission show. The difference in the number of wagers on a gain in the euro compared with those on a decline, known as net longs, was 23,452 on March 4, the most since Dec. 31.

The Aussie led gains among the 31 major currencies this week as strengthening economic data and a neutral central bank policy stance drove the currency to the strongest since Dec. 11. Faster-than-projected economic growth and the biggest trade surplus in 2 1/2 years also increased investors’ appetite for the Aussie.

It rallied 1.6 percent to 90.68 U.S. cents and touched 91.33 after Reserve Bank of Australia Governor Glenn Stevens told lawmakers yesterday jawboning has a limited effect on the currency. He said the exchange rate is high by historical standards, reiterating comments in a March 4 policy statement.

“The RBA has boxed itself in now since ramping up verbal intervention after the August cut,” said Annette Beacher, head of Asia-Pacific research at TD Securities Inc. in Singapore. “If they don’t talk it down, it will go to the moon.”

Ruble Declines

The ruble weakened 1.4 percent to 42.0474 against Bank Rossii’s target basket of dollars and euros and slumped 1.6 percent against the greenback as lawmakers in the Federation Council are ready to support Crimea’s move to rejoin Russia, if a decision is approved in a referendum on March 16, RIA reported, citing the speaker of the upper house of Russia’s parliament Valentina Matvienko.

“With memories of last Saturday still fresh, people are closing ruble positions in order to avoid any geopolitical escalation during the weekend,” Vladimir Miklashevsky, a strategist at Danske Bank A/S in Helsinki, said in e-mailed comments, referring to the Russian parliament’s decision on March 2 to authorize possible military action in Ukraine.

In China, the central bank may expand the 1 percent trading band this year in small, incremental steps, according to a China Securities Journal commentary yesterday. The yuan’s record 1.4 percent drop last month has paved the way for policy changes in foreign-exchange rules and capital-account convertibility moves, it said.

The yuan strengthened 0.3 percent this week to 6.1280 per dollar in Shanghai, according to China Foreign Exchange Trade System prices.

Jobs Report

The dollar rose to a six-week high against the yen yesterday as the Labor Department reported employers added 175,000 jobs in February, compared with the median estimate of 149,000 in a Bloomberg survey of economists.

Federal Reserve policy makers are focusing on the job market to help guide the pace at which they’re reducing stimulus. The Federal Open Market Committee’s next meeting ends March 19. The central bank will continue cutting monthly bond purchases by $10 billion per meeting, based on a Bloomberg survey of economists.

“There’s been nothing but dollar buying across the board,” Brad Bechtel, managing director at Faros Trading LLC in Stamford, Connecticut, said in a phone interview. “Fed officials have been very adamant about high hurdles to change the pace of tapering, but this seals the deal. They’re definitely not going to be changing the pace anytime soon.”

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major currencies, was little changed at 1,016.32 in the past five days, and reached 1012.27, the lowest since Dec. 11.

ECB Rate

The greenback rose 0.1 percent in the past 12 months, according to Bloomberg Correlation-Weighted Indexes that track 10 developed-nation currencies. The euro rallied 6.7 percent, while the yen slid 9 percent.

The ECB left its benchmark interest rate at 0.25 percent at a meeting in Frankfurt on March 6, as forecast by 40 out of 54 economists surveyed by Bloomberg News. The other 14 were predicting a rate cut amid inflation below the central bank’s 2 percent goal.

Euro-area inflation, which was at 0.8 percent in February, will accelerate to 1.7 percent in the fourth quarter of 2016, according to central bank forecasts.

“A large part of the market was expecting some form of action from the ECB, or some indication that monetary easing would be coming in the very near future,” Omer Esiner, chief market analyst in Washington at the currency brokerage Commonwealth Foreign Exchange Inc., said in a phone interview. “We didn’t get either of those things, which is why the euro is trading higher across the board.”

Before it's here, it's on the Bloomberg Terminal.