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FOREX-Euro struggles after ECB officials reopen easing debate; yen slips
March 27, 2014 / 7:10 AM / in 4 years

FOREX-Euro struggles after ECB officials reopen easing debate; yen slips

* Easing by ECB back on radar after Weidmann, Draghi comments

* Yen retreats after touching 1-week high vs dollar (Updates prices)

By Hideyuki Sano and Masayuki Kitano

TOKYO/SINGAPORE, March 27 (Reuters) - The euro held steady near recent lows versus the dollar on Thursday after comments from European Central Bank officials revived speculation about new monetary easing to stave off potential deflation.

The euro traded at $1.3784, hovering near a low of $1.3749 hit twice in recent days, a break of which will bring the currency to its lowest level since March 6.

That was the day when currency posted its biggest jump in the past two months as the ECB refrained from taking any easing steps. The euro’s rally went on to a 2 1/2-year high of $1.3967 hit a week later.

But speculation of more stimulus was rekindled after influential ECB governing council member and Bundesbank chief Jens Weidmann said on Tuesday that the central bank could exercise several options to temper euro strength and combat deflation.

Weidmann said negative interest rates were an option and quantitative easing was not out of the question -- surprising investors given the German central bank has consistently viewed quantitative easing critically.

ECB President Mario Draghi said on the same day that the central bank stood ready to act if inflation slipped lower than the ECB expected.

The comments put fresh focus on euro zone consumer price data due on Monday, which economists expect to show subdued inflation of 0.7 percent, below the ECB’s annual inflation forecast of 1 percent this year.

“It seems the ECB is concerned about disinflation a bit more than the market had been led to believe. The ECB seems to be trying to adjust market expectations as the euro has gained,” said Shin Kadota, chief FX strategist at Barclays.

The euro hit a two-week low against sterling in early trade, falling to 0.8311/pound.

Against the yen, the single currency touched a three-week low of 140.28 yen on trading platform EBS, falling back to levels seen before this month’s ECB policy meeting.

The euro later came off that low and last stood at around 140.85 yen, up 0.2 percent on the day.

YEN FALTERS

The yen pulled away from its earlier intraday highs against the dollar and the euro as risk sentiment stabilised in Asian afternoon trade, with Japanese shares staging a sharp reversal from their earlier losses.

“There’s probably some short-covering in equities and that seems to be spilling over into short-covering in dollar/yen and cross/yen,” said Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corporation in Singapore.

Tokyo stock market players said reinvestment by a public pension fund and short-covering in futures helped lift Japanese shares.

Earlier on Thursday, the yen had touched a one-week high of 101.71 yen against the dollar, drawing some support from renewed concerns over Ukraine after U.S. President Barack Obama’s tough talk on Russia on Wednesday. There were also some soft spots in U.S. durable goods orders data.

While there was some focus on the potential for Japanese fund repatriation ahead of Japan’s financial year-end at the end of March, some traders played it down.

The dollar ran into long liquidation in the wake of its failure to rise above 102.50 yen on Wednesday, said Hiroshi Maeba, head of FX trading Japan for UBS in Tokyo, referring to the dollar’s drop versus the yen earlier on Thursday.

“Some downside stops were triggered following the risk-off type of move we saw yesterday,” he said, adding that there had been some stop-loss dollar offers at levels below 101.80 yen.

After reversing its earlier losses, the dollar last stood at 102.18 yen, up 0.1 percent on the day. (Editing by Eric Meijer)

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