FOREX-Yen tanks broadly, euro gains on Italy vote results

Mon Feb 25, 2013 10:13am EST

Related Topics

* Yen falls on talk of new dovish BoJ chief

* Euro gains as Italy elections poll results emerge

* UK rating downgrade pushes sterling to multi-month lows

By Julie Haviv

NEW YORK, Feb 25 (Reuters) - The yen plummeted across the board on Monday, hitting a 33-month low against the dollar on bets that the Japanese government will tap strong proponents of aggressive monetary easing for top positions at the Japanese Central Bank.

The euro leaped versus the dollar and yen as poll results from an Italian election showed the country will likely be able to deliver a coalition government. An exit poll showed that the centre-left coalition led by Pier Luigi Bersani was leading Silvio Berlusconi's centre-right bloc.

The euro was also buoyed by solid demand at an Italian bond auction that assuaged concerns about the debt crisis.

The yen fell for a second straight session against the dollar on news that Japan's prime minister is likely to nominate Asian Development Bank President Haruhiko Kuroda as the next central bank governor to step up his fight to finally rid the country of deflation.

Japanese Prime Minister Shinzo Abe won a big election victory in December promising to revive the fortunes of an economy stuck in the doldrums for most of the past two decades.

Abe's repeated calls for more forceful central bank action are largely behind the currency's nearly 20 percent loss in value against the dollar since November, when Abe began calling for bolder monetary easing.

"The news all but ensures that the BoJ will continue on an expansionary path of monetary easing to help kick start the world's number three economy," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington D.C.

"Consequently, the yen remains vulnerable to continued losses across the board," he said.

Like the U.S. Federal Reserve, the Bank of Japan has cut interest rates close to zero. Since then it has adopted unorthodox measures to inject cash into the economy, currently in its fourth recession since 2000, to try to stimulate growth.

The dollar shot up to 94.76 yen on Monday, a high not seen since May 2010. The U.S. currency last traded at 94.08 yen, up 0.7 percent on the day, according to Reuters data.

Some analysts said the yen would remain on a weakening trend, although the dollar would face resistance at the psychologically important level of 95 yen.

The euro last traded up 1.5 percent at 124.94 yen after earlier hitting a high of 125.25 yen. It held below the 34-month peak of 127.71 set earlier this month.

"Dollar/yen has moved on the back of talk that Kuroda is going to head up the BOJ and he is going to be inclined to crank up the printing presses," said Neil Mellor, currency strategist at Bank of New York Mellon.

Some analysts said the yen would remain on a weakening trend, although the dollar would face resistance at the psychologically important level of 95 yen.

Sterling, meanwhile, slumped to multi-month lows against the dollar and the euro after the UK lost its prized triple-A credit rating on Friday.

Moody's cut Britain's rating by one notch to Aa1 from Aaa, citing weak prospects for economic growth.

Sterling fell to a 16-month low versus the euro of 87.75 pence per euro and 31-month low against the dollar of $1.5073.

It looked likely to remain vulnerable on expectations the Bank of England could expand its quantitative easing further to bolster the fragile UK economy.

EURO THRIVES BUT GAINS SEEN TENUOUS

Against the dollar, the euro last traded at $1.3282, up 0.7 percent on the day, helped by Italian election and demand at an Italian debt auction and gains in European shares.

The euro bounced from a six-week low of $1.3144 hit on Friday, and market players said some investors who had previously bet against the euro were taking profit by closing those short positions.

The euro could lose ground against the dollar should risk appetite abate this week. If Washington D.C. politicians do not reach an agreement on a deficit reduction deal this week, $85 billion in spending cuts will automatically kick in on March 1.

Concerns about global economic growth could also weigh on risk sentiment.

Growth in China's giant manufacturing sector in February pulled back from two-year highs despite a fourth consecutive month of expansion, a private survey showed on Monday, as foreign demand remained unsteady.

FILED UNDER:
A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

Find your dream retirement town

Florida? Hawaii? Reuters has teamed up with Zillow to give you the power to customize a list of your best places to retire.  Video | Full Article