Euro lifted to more than two-week high by speculative flows

Demand for the euro arising from a Japanese bank's plans to purchase the multi-billion dollar aviation finance business is said to be driving up the common EU currency. — Reuters pic
Demand for the euro arising from a Japanese bank's plans to purchase the multi-billion dollar aviation finance business is said to be driving up the common EU currency. — Reuters pic

TOKYO, April 12 — The euro rose to a 2-1/2-week high today, as dealers said speculators anticipated increased demand for the common currency arising from a Japanese bank's plans to purchase the multi-billion dollar aviation finance business from a German bank.

The euro rose 0.35 per cent to US$1.1289 after touching US$1.1294, its highest since March 26. The common currency also advanced about 0.4 per cent to 126.23 yen, its strongest since March 21.

Dealers said speculators were buying the euro in response to reports on Mitsubishi UFJ Financial Group's planned purchase of the aviation financing business of Germany's DZ Bank. As of June last year, that business stood at €5.6 billion (RM25.9 billion).

Pressured by the stronger euro, the US dollar index against a basket of six major currencies was down 0.2 per cent at 96.991, giving up most of the previous day's gains.

Masafumi Yamamoto, chief forex strategist at Mizuho Securities in Tokyo expected the common currency to hold onto its gains.

“It is not really a surprise that the euro is capable of reacting quickly to potentially positive factors, given the fundamentals surrounding the euro zone economy are showing signs of improvement.”

This week both France and Italy reported higher than expected industrial output in February, offering positive signs for the bloc after some downbeat data.

The US dollar was little changed at 111.77 yen after gaining 0.6 per cent overnight on robust US data and the subsequent rise in US Treasury yields.

Data released yesterday showed first-time filings for US jobless benefits dropped to a 49-1/2-year low last week, pointing to sustained labour market strength. Overall producer prices increased 0.6 percent in March, the largest rise since October.

The greenback's advance, however, stalled ahead of the 112.00 yen threshold.

“Many market players had taken a bearish view on the dollar after the US CPI numbers released earlier in the week, but they were forced to abruptly cover short positions as yesterday's data proved to be strong,” said Takuya Kanda, general manager at Gaitame.Com Research Institute.

“The rise thus lacked conviction and it remains to be seen if the dollar can sustain its bounce. The prospect of a rate cut by the Fed may have diminished in light of the data, but economic views are not yet strong enough to support rate hike expectations,” Kanda said.

The US dollar had sagged on Wednesday after a mixed report on domestic consumer prices reinforced the notion that underlying US inflation remains tame.

With the US dollar broadly lower, the pound rose 0.2 per cent to US$1.3078 to cancel out most of the previous day's losses.

Volatility for sterling plunged after a midweek deal at an emergency European Union summit to postpone Britain's exit from the bloc to October 31. The deal meant Britain would not crash out this week without a treaty.

The Canadian dollar edged up 0.15 per cent to C$1.3367 per US dollar after shedding 0.5 per cent the previous day as crude oil prices retreated from five-month highs.

The Australian dollar traded at US$0.7117, eking out a gain of 0.1 per cent, after sinking 0.7 per cent yesterday.

The Aussie had also been weighed down by a decline in copper prices and political uncertainty.

Australian Prime Minister Scott Morrison yesterday announced a general election to be held on May 18.

The New Zealand dollar, also sensitive to shifts in commodity prices, slipped to US$0.6714, its lowest since January 22, before pulling back to US$0.6735. — Reuters

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