* Bank repayments of ECB emergency loans, German data help
* But euro faces major resistance below $1.35
* Yen undermined by BOJ expectations, higher US yields
* Dollar/yen up 0.2 pct, euro/dollar flat, cable down 0.2
By Hideyuki Sano
TOKYO, Jan 28 The euro was buoyed near an
11-month high against the dollar on Monday on mounting signs of
recovering economic confidence in Europe, while the yen slipped
to a 2-1/2-year low versus the dollar on expectations of more
monetary easing in Japan.
Data on Friday showed European banks are repaying more than
expected of the emergency loans they borrowed from the European
Central Bank (ECB) during the debt crisis, in a sign of their
German business morale also improved for a third consecutive
month in January to its highest in more than half a year, more
evidence that Europe's largest economy is gathering speed again
after contracting late last year.
The euro fetched $1.3459, flat from late U.S. levels
last week but not far below an 11-month high of $1.3480 hit on
The single currency looks set to face a series of major
resistance levels near $1.35, including its 2012 high of
$1.34869, the 50 percent retracement from the high in May 2011
to the low in July 2012 at $1.3492, and the
psychologically-important $1.3500 figure.
The euro was also helped by the perception that the ECB's
monetary policy is less loose than that of the U.S. Federal
"While the Fed is still taking an accommodative policy
stance, the ECB isn't. The fact that banks are returning loans
to the ECB also means a smaller balance sheet at the ECB," said
a trader at a Japanese bank.
"This difference in monetary policy stance is likely to help
the euro in the very near term," he said.
As investors shifted their money back to the euro from
various safe havens, the common currency vaulted to a 21-month
high against the yen, a 13-month high against the British pound
and stayed near an eight-month high against the Australian
Against the yen it rose as high as 122.90 yen,
with its 2011 high of 123.33 seen as the next possible target.
Against sterling, the euro climbed to 85.48 pence.
The yen's extended is two-month slide, hitting a 2-1/2-year
low against the dollar, on expectations of further monetary
easing down the road.
The yen's steep drop has raised eyebrows abroad and sparked
talk it is triggering a currency war, with German Chancellor
Angela Merkel saying she has some concerns about Japan's policy.
But at weekend Japan's economy minister rejected criticism
that his country's extraordinary fiscal and monetary stimulus
programme was aimed at weakening the yen.
The dollar climbed as far as 91.26 yen, its highest
level since June 2010 and last stood at 91.05 yen, up 0.2
percent from late U.S. levels.
The yen's weakness stemmed also from a rise in U.S. bond
yields, with which the currency has a close inverse correlation,
as well as Japan's trade balance, which turned into the red
after the nuclear disaster in 2011.
The 10-year U.S. bond yield shot up on Friday,
helped by optimism on the global economy. Wall Street shares
also gained, with the S&P 500 index hitting a five-year
"There's no reason to buy the yen now. I think we could see
three-digit figures (in the dollar/yen rate) this year," said a
trader at a U.S. bank.
The British pound was also soft, after data on Friday showed
the UK GDP posted a larger-than-expected 0.3 percent contraction
in the final quarter of last year.
The pound fell 0.2 percent to $1.5760, near
Friday's five-month low of $1.5745.
Traders also say the pound has been hurt by Prime Minister
David Cameron's pledge to hold a referendum on Britain's
membership of the European Union, which is raising concerns it
could deter foreign investment into Britain.