Categorized | Forex

FOREX-Yen firms as uncertainty over ECB action caps euro

FOREX-Yen firms as uncertainty over ECB action caps euro

* Euro’s recovery may be at risk before major events

* Dollar awaits signals from Bernanke later this week

* Aussie hits one-month low on mining outlook concerns

By Anirban Nag

LONDON, Aug 28 (Reuters) – The safe-haven yen rose against the euro and the dollar on Tuesday as investors worried about a patchy global recovery and whether central bankers meeting later this week will signal further monetary stimulus.

The growth-linked Australian dollar fell to a one-month low against the dollar and the yen as on concern about the extent of economic slowdown in China, and the impact this would have on the mining boom in Australia.

Analysts say the euro’s recovery, triggered after European Central Bank chief Mario Draghi said he would do whatever it took to preserve the euro, appeared to be waning with details of the ECB’s bond-buying scheme still uncertain.

The euro was flat at $1.2505, well below a seven-week high of $1.2590 struck on Aug. 23. Traders cited bids at $1.2450 with stop-loss orders below $1.2420. Reported option barriers at $1.2600 were expected to limit gains, traders said.

The dollar has came under pressure against most major currencies, including the euro, since minutes last week of the U.S. Federal Reserve’s last policy meeting sparked expectations it may start a fresh round of stimulus next month.

Traders will looking for more clues in Friday’s speech by Fed Chairman Ben Bernanke at an annual meeting of central bankers at Jackson Hole, Wyoming.

“The euro’s inability to rise above $1.26 suggests there is a lot uncertainty going into the Jackson Hole symposium,” said Adam Myers, senior currency strategist at Credit Agricole.

“It is difficult for the U.S. dollar to weaken unless there is a clearer direction from Bernanke. So until then, the euro will be trapped in a range.”

The euro has held above a two-year low struck in late July, supported by speculation the ECB will provide details of a new bond-buying programme aimed at lowering the debt yields of Spain and Italy after its Sept. 6 policy meeting. The implementation of this bond-buying scheme, though, is likely to start in late September at the earliest.

Germany’s powerful Bundesbank opposes bond buying, although a top ECB policymaker Joerg Asmussen said on Monday that policymakers would tailor its new plan to dispel any concerns that it funds governments.

“Unless the market sees action to back up its words soon, the rally (in the euro) will fizzle,” said Minori Uchida, chief FX strategist at the Bank of Tokyo-Mitsubishi UFJ.


The euro fell 0.4 percent to 97.96 yen with Japanese investors said to be selling the euro. The yen was also helped by Japanese exporters’ buying against the dollar.

The dollar fell 0.3 percent to 78.52 yen. Investors usually buy the safe-haven yen during uncertainty about the global economy or heightened financial market stress.

But in a sign of strong expectations of range-bound trade, implied volatilities on dollar/yen options remained around 6.5 percent, one of the lowest levels in recent years.

While the yen made fresh gains, the commodity-linked Australian dollar hit a fresh five-week low of $1.0345.

Sharp drops in the price of iron ore, coal and other commodities largely exported to China are adding to worries, although Australian Treasurer Wayne Swan dismissed concerns the declines will weaken government revenues.

“We are expecting the Aussie to fall further as prices of iron ore, amongst Australia’s top export, come under pressure and worries about a slowdown in China mount,” Credit Agricole’s Myers said. “But diversification by central banks is likely to slow the process.”

The Aussie also hit a one-month low of 81.25 yen, and a seven-week low of A$1.2069 per euro.

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