FOREX-Euro gains v dollar; yen sinks as early Japan election seen

Wed Nov 14, 2012 1:06pm EST

Related Topics

* Euro on track for best day in two weeks
    * Rehn says Spain has taken effective action for 2012, 2013
    * Japan PM Noda open to dissolving parliament on Friday
    * Fed minutes due later on Wednesday


    By Gertrude Chavez-Dreyfuss
    NEW YORK, Nov 14 (Reuters) - The euro was on track to post
its largest daily gain in two weeks against the U.S. dollar on
Wednesday, after five losing sessions, on expectations Greece
may receive another round of financial aid soon.  
    The yen, on the other hand, fell sharply against the dollar
and euro after Japanese Prime Minister Yoshihiko Noda said he
was ready to dissolve the lower house of parliament later this
week and hold a snap election next month. 
    The euro had pared its losses on Tuesday on news Greece may
receive aid worth roughly 44 billion euros ($55.93 billion) in a
single tranche, a proposal made by Germany and discussed at a
meeting of European Union finance leaders. 
    That was viewed as positive for the euro because the mere
fact that Germany made the proposal suggested that it was eager
and willing to resolve the Greece's debt crisis.
    But for Greece to receive financial aid, international
lenders must reach a broader agreement on the sustainability of
Greece's debt, which is likely to check the euro's gains.
 
    The euro was also supported by comments from European Union
Economic and Monetary Affairs Commissioner Olli Rehn who
effectively endorsed Spain's austerity measures to cut its
deficit in 2012 and 2013, although steps for 2014 fell short of
what was expected by the group's finance ministers.
 
    "Overall, Rehn's comments were a credible and positive spin
on Spain," said Sebastien Galy, currency strategist at Societe
Generale in New York. "But unfortunately that positive spin on
Spain is not translating to a rally in other riskier currencies
such as the Aussie dollar."
    The yen, meanwhile, was the biggest mover of the day,
notching losses of more than 1.0 percent against the dollar and
euro as hedge funds and long-term investors sold the Japanese
currency.
    The main opposition Liberal Democratic Party (LDP), which
favors further monetary policy easing by the central bank of
Japan, leads in opinion polls and the prospect of an early
election is regarded as negative for the yen. 
    LDP leader Shinzo Abe called on the central bank on
Wednesday to print "unlimited yen" to achieve a new inflation
target. 
    Japanese PM Noda also told parliament he would be willing to
dissolve the lower house on Nov. 16 and hold elections in
December if the opposition agreed to pass reforms to the
electoral system. 
    Against the yen, the dollar rose more than 1.0 percent to
80.18 yen and the euro climbed 1.4 percent to 102.18 yen
.
    The euro also rose 0.3 percent against the dollar to 1.2741
. It pared gains after weak economic U.S. data, denting
the market's appetite for some of higher-risk currencies. 
    U.S. retail sales fell in October, while producer prices
unexpectedly weakened last month. 
    "This morning's economic reports paint a picture of a slow
and struggling U.S. recovery that will require continued
stimulus from the Federal Reserve," said Kathy Lien, managing
director of FX strategy at BK Asset Management in New York.
    
    THE FED AND THE DOLLAR
    The yen aside, the U.S. dollar eased against most major
currencies, including the Swiss franc, on growing signs
the Federal Reserve is likely to adopt an ultra-loose monetary
stance in coming months.
    The Fed's influential Vice Chair Janet Yellen said on
Tuesday U.S. interest rates may need to stay near zero until
early 2016 to forcefully boost employment. 
    The minutes from the latest Federal Open Market Committee
meeting will be released later on Wednesday and are likely to
confirm an easy policy bias for some time to come. That should
limit the dollar's recent gains.
    The dollar index was flat on the day to 81.086,
having hit a two-month high of 81.241 on Tuesday.
    Sterling hit a more than two-month low against the dollar
 of $1.5839 after the Bank of England's inflation report
painted a gloomy outlook for the UK economy and governor Mervyn
King said quantitative easing could still be restarted.
 
    The pound was last down 0.1 percent at $1.5852.
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