FOREX-Euro Supported by ECB Policy Plans, Yen Falls to 24-Year Low


Band Samuel Indyk

LONDON, June 21 (Reuters)The euro rose on Tuesday, building on plans by the European Central Bank to raise interest rates to contain inflation, while the yen slumped to its lowest level in 24 years, the policy ultra-accommodative monetary policy from the Bank of Japan continuing to weigh.

euro EUR=EBS was 0.4% firmer at $1.0554 after ECB Chief Economist Philip Lane said the ECB would raise interest rates by 25 basis points at its July meeting, but the extent of its September rise is yet to be determined, suggesting that a larger 50 basis point rise could be on the cards.

Meanwhile, ECB policymaker Francois Villeroy de Galhau said the central bank’s planned instrument against financial fragmentation must enable it to back up its commitment to defend the euro.

The ECB’s communication efforts are having the desired effect on eurozone bond markets, which in turn are supporting the euro, according to Simon Harvey, head of currency analysis at Monex Europe.

“This reduces the risk to financial stability in the eurozone and the integrity of the single currency, thereby reducing the upside resistance of the currency pair,” Harvey said.

Broadly higher risk sentiment in the markets, with US stock futures up almost 2% and most European equity indices up, also supported the euro.

“With a more constructive multi-asset backdrop today, we just see reduced upside resistance playing out in the Euro-Dollar as 1.06 returns to focus,” Harvey added.

Elsewhere, the yen fell more than 0.5% to a 24-year low of 135.835 to the dollar JPY=EBScontinuing to weaken after the Bank of Japan dashed any slight expectation of a policy shift on Friday and renewed its commitment to ultra-easy monetary settings.

The dollar index =USDwhich tracks the greenback against six major peers, including the euro and the yen, fell 0.2% to 104.23, with eyes on testimony from Federal Reserve Chairman Jerome Powell in Congress, which will start on Wednesday.

“The next big dollar contribution will come when Fed Chairman Jerome Powell delivers his semi-annual testimony on monetary policy in the Senate – which, judging by the last FOMC meeting, should be quite hawkish and means any Dollar decline today is likely to be limited,” he added. ING analysts said in a note.

Two more Fed policymakers are due to make public remarks later on Tuesday, with traders watching their comments closely for clues to the path of interest rates.

The Australian dollar AUD=D3 rose 0.1% after Reserve Bank of Australia Governor Philip Lowe signaled much stronger policy tightening ahead, although he played down the chances of a rate hike of 75 basis points.

Sterling GBP=D3 rose 0.4% to $1.2294 ahead of Wednesday’s inflation figures and, as Bank of England chief economist Huw Pill said interest rates will have to rise further in the near future to fight inflation.

Biggest cryptocurrency bitcoin BTC=BTSP rose 3.5% to $1,274 as it continues its recovery from an 18-month low of $17,592 hit over the weekend.

World exchange rates

(Reporting by Samuel Indyk in London and Alun John in Hong Kong; Editing by Emelia Sithole-Matarise and Chizu Nomiyama)


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