Euro Jumps Most in 7 Months as ECB Plan Lacks Details

The euro climbed the most since March as the European Central Bank failed to provide details on the size of a plan to buy private debt, curbing bets it would expand the ECB’s balance sheet enough to weaken the currency.

The yen advanced as Japanese Vice Finance Minister Nobuhide Minorikawa said weakness in the currency is hurting some companies by driving up energy prices. Australia’s dollar rebounded from an eight-month low, while the pound fell and the U.S. currency declined. The euro gained from almost a two-year low as ECB President Mario Draghi unveiled plans to buy covered bonds and asset-backed securities for at least two years.

“It’s probably a relatively short-lived rally,” Jennifer Vail, head of fixed income at U.S. Bank Wealth Management in Minneapolis, said in a phone interview. “The next negative economic print is going to weigh on the euro again. I don’t think it has substantial legs. It’s kind of bouncing off the bottom.”

The euro jumped as much as 0.6 percent, the biggest intraday increase since March 6, to $1.2699 before trading at $1.2669 at 5 p.m. New York time, up 0.4 percent. It touched $1.2571 on Sept. 30, the lowest level since September 2012.

The yen appreciated 0.4 percent to 108.42 per dollar, after reaching 110.09 yesterday, the weakest since August 2008. It gained 0.1 percent to 137.35 per euro.

Yen Strengthens

Japan’s currency rose for a second day following Minorikawa’s comments, which came after former Finance Minister Hirohisa Fujii said yesterday further declines in the currency may trigger intervention. The Bank of Japan’s stimulus policy leading to a weak yen is mistaken, he said in an interview. The central bank is trying to avert deflation and spur the economy.

Dissent is increasing against the accommodative monetary policy, which has seen 60 trillion yen ($553 billion) to 70 trillion yen committed to annual asset purchases, as consumer prices remain depressed and growth is anemic. The weaker yen puts Japan at risk of recession, Kazumasa Iwata, deputy governor of the central bank until 2008, warned last month.

The yen dropped 5.1 percent in September against the dollar, the biggest monthly decline since January 2013.

“The whole notion of devaluing the currency has been a bad policy,” Robert Sinche, a global strategist at Pierpont Securities LLC in Stamford, Connecticut, said by phone. “They think the yen is overvalued, but we’ve just had a very extreme move, and I think their concern was that it could destabilize markets and destabilize the economy.”

Implied Volatility

Implied volatility for one-month options on the U.S. dollar versus the Japanese currency rose to 8.85 percent, the highest on a closing basis since March 3. The measure is used to set option prices and gauge the expected pace of currency swings. The average this year is 6.96 percent.

The yen will trade at 113 to the dollar at the end of next year, according to the median forecast of analysts in a Bloomberg survey.

In Europe, Draghi told reporters today the ECB balance sheet is just “an instrument.” The only mandate policy makers have to comply with is to bring inflation back to a level that is close to, but below, 2 percent, he said. Euro-area consumer prices rose an annual 0.3 percent in September.

The purchase program is part of an easing plan the ECB president previously said would steer the balance sheet back toward levels seen at the start of 2012, signaling as much as 1 trillion euros ($1.3 trillion) in assets may be added.

‘Additional Measures’

“Draghi was playing down the oncoming rise in the balance sheet, that’s the market’s initial read,” said Alan Ruskin, global head of Deutsche Bank AG’s Group of 10 foreign exchange in New York. “But over time the market will come to realize the inflation expectation will remain stubbornly inert and it’ll evoke what he said at least three times: he’s open to additional measures beyond what they’ve done.”

ECB policy makers kept the key interest rates unchanged at record lows, as predicted by all analysts surveyed by Bloomberg.

The Bloomberg Dollar Spot Index fell 0.3 percent to 1,067.44, the biggest drop on a closing basis since June 18. It reached 1,070.94 on Sept. 30, the highest closing level since June 2010.

U.S. factory orders dropped 10.1 percent in August, a government report showed, after climbing 10.5 percent the previous month. Economists surveyed by Bloomberg forecast a 9.5 percent drop.

Jobs Report

The number of Americans applying for unemployment benefits unexpectedly fell last week to 287,000, from 295,000, the Labor Department reported. U.S. employers added 215,000 jobs in September, economists forecast before the department issues a report tomorrow. The gain in August was 142,000.

The dollar climbed 3.4 percent in the past month versus nine other developed-nation currencies tracked by Bloomberg Correlation Weighted Indexes, the best performance. The euro weakened 0.6 percent, while the yen was little changed. The Australian and New Zealand dollars were the biggest losers, each dropping 2.4 percent.

The two South Pacific currencies climbed today as policy makers eased property restrictions in China, their biggest trading partner. New Zealand’s dollar rallied 1.5 percent to 79.02 U.S. cents. The Aussie rose 0.7 percent to 88.03 U.S. cents, after falling yesterday to as low as 86.63 cents, the least since Jan. 24.

The move by the People’s Bank of China on Sept. 30 marked a reversal in a four-year tightening campaign, as slowing property investment and industrial production raise risks that economic growth will drift too far below the government’s target.

The U.K.’s pound dropped against most of its 31 major counterparts after Bank of England policy maker Ben Broadbent suggested the U.K. economic recovery may not be strong enough to warrant an interest-rate increase.

The pound fell 0.3 percent to $1.6145 and weakened 0.6 percent to 78.47 pence per euro.

Broadbent said in an interview with ITV that Britain is “not ready yet” for a higher rate.

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