FOREX-Euro lunges to highest since April vs dollar on Draghi impact

Fri Jan 11, 2013 3:06pm EST

Related Topics

* Euro/dollar rises to highest since April 2012 on Draghi comments

* Yen weak after Abe pushes BOJ to ease policy

By Julie Haviv

NEW YORK, Jan 11 (Reuters) - The euro skyrocketed to its highest level against the dollar since April 2012 on Friday, a day after European Central Bank Mario Draghi set a supportive tone when he gave no indication the central bank would lower rates.

Market participants had been wary that ECB President Mario Draghi would signal rate cuts in the coming months, but he gave no hint that the central bank was contemplating a rate cut any time soon, a bullish signal for investors.

The euro's 0.6 percent gain added to the 1.6 percent advance on Thursday, its biggest daily gain in five months. . Draghi spoke after the ECB left its benchmark rate unchanged at 0.75 percent.

While U.S. data had marginal impact on trading it did not hinder appetite for risk.

"The shift in rhetoric by ECB President Mario Draghi from 'this is a financial crisis' to now 'this is an economic growth crisis' signals what could be a shift in policy making," said Christopher Vecchio, Currency Analyst at DailyFX. "Indeed, with no governments requesting a rate cut, a period of calm has descended on Europe."

The euro rose as high as $1.3365 and last traded at $1.3346, up 0.6 percent on the day.

The euro's ascent helped it to its highest since December 2011 against the Swiss franc.

The euro also rose as high as 119.32 yen touching its highest level since May 2011.

The U.S. trade deficit unexpectedly grew in November, exerting a drag on economic growth, although the gap's widening was driven by a surge in consumer goods imports, which gives a positive signal for consumer spending.

"Altogether, the news from the past 24 to 48 hours has mostly been negative for the greenback and positive for foreign currencies," said Nick Bennenbroek, head of currency strategy at Wells Fargo in New York.

"While it is possibly a mild surprise that the U.S. dollar is not showing more consistent weakness, we suspect the near-term direction remains lower for the greenback against most foreign currencies," he said.

YEN FOCUS

The market's focus, with the ECB meeting concluded, remains the yen as investors continued to debate whether the advance in the U.S. currency to a 2-1/2-year high was too far, too fast given the outlook for further easing by the Bank of Japan.

Analysts said such dips in dollar/yen were only temporary, with the overall trend of yen weakness intact. Some expect to see the dollar well above 90 yen in coming months.

The dollar had risen as high as 89.44 yen earlier on Friday, its strongest since June 2010, after Japanese Prime Minister Shinzo Abe's government approved a $117 billion fiscal stimulus package, its largest since the financial crisis. It was last at 89.18 yen, up 0.5 percent, according to Reuters data.

Abe also said the Bank of Japan should consider adding employment to its existing mandate of price stability.

Ian Stannard, head of European FX strategy at Morgan Stanley in London said the pullbacks in dollar/yen have been very shallow and this underlines the strength of this trend.

"The pace of increase not just (in dollar/yen) but also the pace of policy reforms in Japan is exceeding market expectations," said Stannard.

"As a result we have raised our forecast even further ... looking for dollar/yen to move towards the 95 level by the end of this quarter."

The yen has been sinking since November on speculation the BOJ could ease policy further. Analysts expect the BOJ to adopt an explicit 2 percent inflation target at its policy meeting on Jan. 21-22, to fall in line with the aims of the government.

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