The euro advanced against the yen and pound, snapping declines from yesterday, amid optimism the European Central Bank will take decisive steps to stimulate the region’s economy at its monthly policy meeting this week.
The 17-nation currency fluctuated against the dollar before Federal Reserve policy makers begin a two-day meeting today. U.S. Treasury Secretary Timothy F. Geithner and German Finance Minister Wolfgang Schaeuble yesterday backed a commitment by European leaders to defend the euro. Australia’s dollar climbed to a four-month high versus the greenback after a report showed building approvals decreased less than economists estimated.
“The expectations ahead of Thursday’s meeting are exceptionally high,” said Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce in London. “If politicians can retain the market’s confidence until then, the euro should remain supported.”
The euro gained 0.2 percent to 96 yen at 10:09 a.m. London time. The shared currency rose 0.2 percent to 78.21 pence and was little changed at $1.2260 after advancing as much as 0.2 percent. The dollar bought 78.28 yen, a gain of 0.1 percent, after dropping to 77.94 yen on July 23, the weakest level since June 1.
The euro has lost 3.4 percent in the past month, the worst performance among 10 developed-market currencies gauged by Bloomberg Correlation-Weighted Indexes. The yen gained 2.4 percent and the dollar rose 0.2 percent.
ECB President Mario Draghi pledged last week to “do whatever it takes” to preserve the common currency, suggesting policy makers may intervene in bond markets to support ailing euro-area economies.
Draghi has a proposal that involves the European Financial Stability Facility buying government debt on the primary market, buttressed by ECB purchases on the secondary market to ensure lenders transmit its record-low interest rates, two central bank officials said on July 27 on condition of anonymity. Further ECB interest-rate cuts and long-term loans to banks are also up for discussion, one of the officials said.
“The ECB may announce further stimulus measures and these can suppress the European bond yields,” said Thomas Averill, managing director in Sydney at Rochford Capital, a currency and interest-rate risk-management company. “It may create short- term spikes in the euro.”
The ECB meets in Frankfurt on Aug. 2.
Fed Chairman Ben S. Bernanke said this month policy makers are “looking for ways to address the weakness in the economy should more action be needed to promote a sustained recovery in the labor market.”
While the central bank refrained from introducing a third round of asset purchases known as quantitative easing, or QE, at its June meeting, Bernanke indicated it’s an option. The Fed bought $2.3 trillion of securities from 2008 to 2011 to spur growth, and it said in January that its benchmark interest rate will stay at “exceptionally low levels” at least through late 2014.
“The market is pricing in about an 80 percent chance of QE3 sometime in the future,” said Yasuhiro Kaizaki, vice president of global markets at Sumitomo Mitsui Trust Bank in New York. “The easiest thing the Fed could do at this point is to change its language on leaving rates low until 2014.”
The number of permits granted to build or renovate houses and apartments in Australia fell 2.5 percent in June from the previous month, when they gained a revised 27 percent, the Bureau of Statistics in Sydney said today. The decline was smaller than the 15 percent drop predicted by economists in a Bloomberg News survey.
The so-called Aussie was little changed at $1.0518 after rising to $1.0537, the strongest since March 27.