FOREX-Euro rallies to highest since April vs dollar; yen weak

Fri Jan 11, 2013 9:46am EST

Related Topics

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

* Yen weak after Abe pushes BOJ to ease policy

NEW YORK Jan 11 (Reuters) - The euro rose to its highest since April 2012 against the dollar on Friday with investors continuing to trade on the absence of any hints as to future euro zone interest rate cuts from European Central Bank President Mario Draghi on Thursday.

The euro's 0.7 percent gain on Friday added to the 1.6 percent advance on Thursday, its biggest daily gain in five months, after Draghi squashed expectations that the ECB may prepare the groundwork for rate cuts in the near term. . Draghi spoke after the ECB left the benchmark rate unchanged at 0.75 percent.

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

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.

"The month to month gyrations in the trade balance are beside the economic point," said Joseph Trevisani, chief market strategist at WorldWideMarkets, Woodcliff Lake in New Jersey. "The trend and any potential improvement in the trade deficit depend on the American consumer and the price of oil. Neither shows any sign of moderation."

The euro rose as high as $1.3364, using Reuters data, and last traded at $1.3357. Some US$4 billion in euros changed hands using Reuters Dealing data through the global session .

The euro's ascent helped it to a four-month high against the Swiss franc of 1.2180 francs.

The euro also rose as high as 119.22 yen touching its highest level since May 2011.


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 89.34 yen earlier on Friday, according to Reuters data, 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 89.21 yen, up 0.5 percent.

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."

Data showing Japan's first current account deficit in 10 months also put pressure on the yen. The deficit of 222.4 billion yen ($2.5 billion) in November was far larger than the 3.5 billion yen ($39 million) deficit forecast.

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.

The risk is that the BOJ fails to ease as aggressively as expected which could push the dollar/yen lower.

Against the yen, the dollar has risen around 1.2 percent during this week, while the euro has risen around 2.2 percent. Analysts said the current weakness in the yen is likely to persist.