Euro Advances to Three-Week High Against Yen on ECB Interest-Rate Outlook
The euro rose to a three-week high against the yen as the European Central Bank member Jozef Makuch said it is “highly probable” that the bank will raise interest rates next week.
Japan’s currency weakened against all of its major counterparts on the prospect of the Bank of Japan leaving borrowing costs unchanged into 2012. Inflation in Germany stayed at the highest level in more than two years in March, a report is forecast to show today.
“The euro is squeezing up as people are concentrating again on the prospect of widening rate spreads,” said Jeremy Stretch, executive director of foreign-exchange strategy at Canadian Imperial Bank of Commerce in London.
The euro increased 0.5 percent to 115.66 yen at 8:23 a.m. in New York, from 115.08 yesterday, after touching 115.74, the highest level since March 4. Europe’s shared currency traded at $1.4068, compared with $1.4087, after rising as much as 0.4 percent. The dollar gained 0.7 percent to 82.22 yen, from 81.69.
Japan’s consumer prices excluding fresh food decreased 0.3 percent from a year earlier in February. Euro-region annual inflation accelerated to 2.4 percent in February, above the ECB’s 2 percent limit.
“There’s no real pressure on the BOJ to tighten policy, they are still grappling with deflation,” said Lee Hardman, a strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “Over the next 12 months we expect the yen to weaken against the other major currencies as the other major central banks outside Japan move to gradually withdraw loose monetary policy.”
Yen This Year
The yen is headed for a 6.1 percent drop against the euro and a 1.3 percent decline against the dollar this quarter.
ECB President Jean-Claude Trichet said yesterday inflation rates that stick above 2 percent would be a concern. “Our definition of price stability is below 2 percent, close to 2 percent,” Trichet said in Paris. “Differences must be a worry because they can become persistent.”
Makuch, who also heads the National Bank of Slovakia, declined at a press conference in Bratislava today to comment on how much rates might be changed and whether it could be the start of a series of moves.
Europe’s common currency has strengthened 5.1 percent versus the dollar this year and 6.5 percent against the yen as euro-region policy makers stiffened their anti-inflation stance.
The ECB will lift its main refinancing rate by 25 basis points to 1.25 percent at its April 7 meeting, according to the median forecast of 19 economists in Bloomberg News survey.
Europe’s rate will reach 1.75 percent by the end of this year, up from the current record low 1 percent, while the Federal Reserve will lift rates in the first quarter of next year and the Bank of Japan will leave its key interest rate unchanged, separate surveys show.
The implied yield on the three-month Euribor contract expiring in December rose one basis point to 2.08 percent today, up from 1.33 percent at the beginning of the year, as investors added to bets that interest rates will rise.
InterContinentalExchange Inc.’s Dollar Index, used to track the currency against six major U.S. trading partners, rose 0.2 percent to 76.311, trimming its quarterly fall to 3.4 percent.
The S&P/Case-Shiller index of property values in 20 U.S. cities fell 3.2 percent in January from a year earlier, the biggest decrease since November 2009, according to the median forecast of 29 economists in a Bloomberg News survey before today’s report. Separate figures may show consumer confidence declined in March as gasoline prices climbed.
U.S. employers added 190,000 jobs in March, economists forecast before the Labor Department’s April 1 payrolls report. The unemployment rate may have stayed at 8.9 percent.
“For the Fed, what’s really important is payrolls and the employment picture,” Bilal Hafeez, London-based head of foreign-exchange strategy at Deutsche Bank AG, said in an interview with Maryam Nemazee on Bloomberg Television’s “The Pulse.” He said the Fed will raise borrowing costs at the end of this year “at the earliest.”
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