Euro clings to ECB tapering hopes, yen little moved after BOJ

The euro held near a 14-month high against the dollar on Thursday as investors look to hints from the European Central Bank on tapering of its stimulus, while the yen barely budged after the Bank of Japan kept monetary policy on hold.

The ECB is expected to lay the groundwork for an autumn policy shift when it meets on Thursday, emphasizing improved growth while trying to temper expectations after previously setting off a mini-tantrum in financial markets.

ECB President Mario Draghi opened the door to policy tweaks in a speech in Sintra, Portugal, in late June, leading to expectations that the ECB is ready to announce cuts in its asset purchasing program.

The euro is now at $1.1515, backing off a tad from Tuesday’s $1.1583,its highest level since May 2016 but still maintaining gains of 3.0 percent since Draghi’s Sintra speech.

While most market players expect an announcement of tapering from the ECB’s next meeting in September, a move this week is not completely ruled out.

Some market participants, though, said there was a chance the euro would hit suffer a setback given investors have already built up massive positions in the currency. Data from U.S. financial watchdog published on Friday showed speculators last week held the largest net long position in Chicago euro/dollar futures in six years – calling attention to risks in such positions being unwound. 

On the other hand, Chicago futures speculators at the same time had sold the yen believing that the Bank of Japan would stick to its loose monetary policy at Thursday’s monetary meeting, with their net short position at two-year highs.

“This suggests speculators’ core positions are euro-long, yen-short. There is a chance those positions will be wound back after the ECB if markets think the ECB was less hawkish than expected,” said Makoto Noji, senior strategist at SMBC Nikko Securities.

The euro was flat on day at 129.10 yen, off the 17-month peak of 130.76 touched last week.

The dollar fetched 112.11 yen, up 0.1 percent from late U.S. levels after the Bank of Japan kept its policy on hold as expected.

Unlike some other major central banks looking to dial back many years of massive easing, the BOJ showed no inclination to adjust policy.

Yet the yen has been strengthening against the dollar in recent weeks,because of the dollar’s broad weakness, hitting a three-week high of 111.555 to the dollar on Wednesday.

Soft U.S. inflation in recent months is raising speculation that the Federal Reserve may not have justification to raise interest rates one more time this year as Fed policymakers have suggested.

“In the short term, the dollar appears to be under pressure. But given low volatilities in financial markets and the soundness in the global economy, the downside in the dollar/yen will be limited,” said Shusuke Yamada, chief Japan FX strategist at Bank of America Merrill Lynch.

The dollar’s index against a basket of six major currencies.stood at 94.848, up 0.1 percent in Asia but still not far from a 10-month low of 94.476 touched on Tuesday.

The U.S. currency was also hurt by the disappointment that U.S. healthcare bills appear to be falling apart in Congress, undermining the prospects for President Donald Trump’s mooted stimulus and infrastructure-building plans.

The Australian dollar slipped 0.2 percent to $0.7935, meeting a strong resistance at $0.80 after hitting a two-year high of $0.7992. Australia posted bullish employment data on Thursday.

Source: Reuters