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Euro Rises Versus Yen as Industries Gauge Unexpectedly Shows Expansion

Tuesday, 24 January 2012 | 12:42
The euro reached the highest level in almost four weeks versus the yen after a report showed European services and manufacturing industries unexpectedly expanded in January.
The yen fell against all but three of its 16 major peers tracked by Bloomberg after the Bank of Japan cut its economic growth forecast for next year to 2 percent from 2.2 percent and held its key interest rate near zero. A euro-area composite index based on a survey of purchasing managers in both manufacturing and services industries rose to 50.4 this month from 48.3 in December, London-based Markit Economics said today. Economists predicted 48.5. A reading above 50 indicates an expansion.
“Overall, the figures are better than expected and remarkably robust, not just for manufacturing but services as well,” said Michael Derks, chief strategist at FXPro Financial Services Ltd. in London. The figures are “helping the euro,” he said.
The euro strengthened 0.3 percent to 100.59 yen at 10:52 a.m. London time after reaching 100.84, the most since Dec. 29. The common currency was little changed at $1.3003. It earlier touched $1.3063, the highest level since Jan. 4. The dollar climbed 0.4 percent to 77.36 yen.
Financial markets in Asian countries including China and South Korea were shut today for the Lunar New Year holiday.
The yen also declined after it fell below its 100-day moving average against the dollar at 77.19.
Technical Level
“The market is feeling a bit better in terms of risk appetite so traders are able to unwind some of their long yen positions,” said Jane Foley, a senior currency strategist at Rabobank International in London. “Traders were watching technical levels on the yen and it went through the 100-day moving average so the move is a combination of those things.”
A long position is a bet that an asset will rise.
Price swings in group of seven currencies climbed to 10.23 percent today after falling to 10.06 percent yesterday, the least since March 2011, according to the JPMorgan G7 Volatility Index (JPMVXYG7). The decline makes investments in currencies with higher lending rates more attractive as the risk in such trades is that market moves will erase profits.
German manufacturing expanded in January for the first time in four months, according to a separate release from Markit. The nation’s factory gauge rose to 50.9 from 48.4 in December. The services index jumped to a seven-month high of 54.5 from 52.4, while a composite index climbed to 54.0 from 51.3.
Risk Reversals
The cost to protect against a drop in the euro against the dollar is falling, suggesting traders see less scope for a decline in the value of the European currency. Risk-reversal rates for three-month options on the euro versus the dollar shrank to negative 1.6 percent today from as low as negative 2.7 on Dec. 30.
The euro rose against most of its 16 major peers even as Luxembourg Prime Minister Jean-Claude Juncker said talks aimed at relieving Greece’s debt burden were “off track.” Juncker called on creditors to drop demands that new Greek bonds carry coupons averaging 4 percent, he said after chairing a meeting of European finance ministers in Brussels yesterday. Policy makers also discussed new fiscal rules and an enhanced rescue fund for debt-strapped countries before a European leaders’ summit next week.
Bondholders negotiating the debt swap with Greece have made their “maximum” offer, Charles Dallara, managing director of the Washington-based Institute of International Finance, told Athens-based Antenna TV last weekend. Dallara is representing private creditors in the talks.
Source: Bloomberg
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