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FOREX-Draghi comments knock euro, yen resumes broad falls
February 18, 2013 / 4:35 PM / 5 years ago

FOREX-Draghi comments knock euro, yen resumes broad falls

* ECB's Draghi: downside risks to euro zone economy
    * Euro dips but falls limited
    * Yen weakens as PM Abe says buying foreign bonds an option
    * Japan skirts G20 criticism over weak yen

    By Jessica Mortimer
    LONDON, Feb 18 (Reuters) - The euro dipped against the
dollar on Monday as European Central Bank president Mario Draghi
said the euro's appreciation added downside risks to inflation
and reiterated there were risks to the euro zone economic
outlook.
    Its drop was limited, however, with traders still inclined
to buy the currency on dips, especially against a broadly weaker
yen. The Japanese currency resumed broad falls after Japan
signalled it would push ahead with aggressive monetary easing,
having escaped criticism from G20 countries at the weekend.
 
    But trading volumes were thin, with U.S. markets closed for
President's Day. 
    The euro was down 0.1 percent at $1.3348, having
dropped to around $1.3333 following Draghi's comments. It
remained above chart support around $1.3310, the 38.2 percent
retracement level of its Nov-Feb rally.
    "Draghi's comments prompted a bit of a dip in the euro but
that just provided better levels to buy the currency," said
Jeremy Stretch, head of currency strategy at CIBC.
    "There is still enough justification to buy the euro on
dips, helped in part by the gains in euro/yen after the G20
seemingly gave the green light for countries to continue
measures which weaken their currencies."
    Speaking before the European Parliament, Draghi said the
euro's exchange rate was not a policy target but was important
for growth and stability, adding that appreciation of the euro
"is a risk". 
    The euro has been under selling pressure in the wake of data
recently revealing a deeper-than-forecast euro zone recession
and on concerns about the outcome of an election in Italy at the
weekend.     
    But it remained higher on the day against a broadly weaker
yen, trading up 0.3 percent at 125.46 yen. This left
it roughly midway between Friday's two-week low of 122.90 and a
34-month high of 127.71 yen hit earlier this month.
    Against the yen the euro has gained more than 9.5 percent
this year, causing some European policymakers to voice concern
about its steep ascent.
    But European Central Bank policymaker Ewald Nowotny said on
Monday the euro was moving within standard ranges and the euro's
exchange rate should not be dramatised. 

    WEAK YEN
    The yen resumed falls as Japan's Prime Minister Shinzo Abe
said buying foreign bonds was an option for the central bank.  
    The dollar was up 0.5 percent to 93.93 yen,
recovering from a low of 92.20 hit on Friday and within reach of
a 33-month peak around 94.47 set a week ago. But traders said it
may run into selling before a reported option barrier at 94.50. 
    The dollar has risen around 20 percent against the yen since
mid-November, when prospects of a new government sparked talk of
aggressive monetary easing.
    Citi have added a new long dollar/yen spot position to their
leveraged trade ideas portfolio and are targeting 95.70 yen with
a stop loss at 92.55 yen, they said in a note to clients.
    But strategists said while the yen was likely to continue
weakening, its fall could lose momentum as investors became wary
of betting on further yen weakness until there was more clarity
on the next Bank of Japan governor.
    Abe's choice for BOJ governor is expected to be announced in
coming days. While some expect Asian Development Bank head
Haruhiko Kuroda to be the next chief, sources told Reuters that
former top financial bureaucrat, Toshiro Muto, who is seen as
less radical, was the front-runner. 
    "You are likely to see some consolidation in dollar/yen, the
big unknown is who will get appointed as the new BOJ Governor so
it is difficult to put on massive positions beforehand," said
Saeed Amen, currency strategist at Nomura. 
    The dollar rose to a 6-week high against a basket of
currencies, with its index hitting 80.727, before dipping
back to last trade up 0.1 percent at 80.641.

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