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Euro Rallies on Prospects ECB to Hold; Yen Drops - (Bloomberg)

Posted by Chris Advincula on Nov 6, 2013 4:12:00 AM

The euro strengthened against the dollar and the yen as most economists predicted the European Central Bank will refrain from cutting interest rates at a policy meeting tomorrow to await further economic data.

The yen weakened versus most of its 16 major counterparts as a rally in in Japanese stocks reduced demand for the currency as a haven. The dollar fell from near a six-week high against the euro before data tomorrow that analysts said will show economic growth slowed last quarter, damping speculation the Federal Reserve will reduce stimulus. The New Zealand currency climbed to a two-week high as employers added more jobs than analysts forecast.

“The ECB still has a much better balance sheet than the Fed, so I wouldn’t be surprised if we see some euro strength from here,” said Kara Ordway, a currency strategist at City Index Group Ltd. in Sydney. “I can’t see the ECB announcing anything, so as long as we don’t see any surprises from them, the euro is likely to find support around these levels.”

The euro gained 0.2 percent to $1.3497 at 8:50 a.m. London after declining to $1.3442 on Nov. 4, the weakest since Sept 18. The common currency rose 0.2 percent to 132.99 yen after sliding to 132.37 yesterday, the weakest since Oct. 10. The yen was little changed at 98.53 per dollar.

The ECB will leave its main refinancing rate at 0.5 percent tomorrow, according to 67 of 70 economists surveyed by Bloomberg News. Bank of America Corp., Royal Bank of Scotland Group Plc and UBS AG all predict the ECB will reduce borrowing costs.

‘Important Support’

The euro has held “important support” in the $1.3475 to $1.3545 area, which contains the lows from late September and early October, according to JPMorgan Chase & Co.

“This area will define whether a deeper extension is underway,” Niall O’Connor, a technical analyst at JPMorgan in New York, wrote in a research note.

The euro strengthened 5.4 percent this year, the best performer of 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar advanced 2.8 percent and the yen slumped 11 percent.

The yen rallied today as Japan’s Topix Index of shares rose 0.8 percent and the MSCI Asia Pacific Index gained 0.3 percent.

The Bloomberg U.S. Dollar Index, which tracks the greenback against 10 major currencies, dropped 0.2 percent to 1,014.24 after rising to 1,017 on Nov. 4, the highest since Sept. 18. 

U.S. gross domestic product grew at a 2 percent annualized rate in the third quarter, down from 2.5 percent in the previous three months, according to a Bloomberg survey before the data is released tomorrow.

Fallen short

San Francisco Fed President John Williams said yesterday economic growth in recent months has fallen short of his expectations, partially eroding his confidence that gains in the labor market will endure without monetary stimulus.

The kiwi strengthened for a fourth day versus the dollar after Statistics New Zealand said employment in the nation rose 1.2 percent in the third quarter, compared with a 0.4 percent gain in the previous three months.

“The labor-market statistics were very positive and another indicator suggesting that the Reserve Bank of New Zealand will need to raise interest rates, probably in the first half of next year,” said Mike Jones, a currency strategist at Bank of New Zealand Ltd. in Wellington. “With rate hike expectations rising up again, the kiwi has been dragged higher.”

The New Zealand currency climbed 0.4 percent to 83.94 U.S. cents after advancing to 84.03 cents, the highest level since Oct. 24. 

 

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Chart: WorldWideMarkets Alpha Trader

 

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Chart: WorldWideMarkets Alpha Trader

 

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