SINGAPORE/SYDNEY, Sept 7: The euro held steady near a two-month high against the dollar on Friday while the safe haven yen nursed heavy losses as markets cheered the European Central Bank’s plan to tackle the region’s debt crisis.
ECB President Mario Draghi, backing up his promise to do whatever it takes to defend the euro, announced a new and potentially unlimited bond-buying programme on Thursday aimed at lowering painfully high borrowing costs for stressed member states.
The news gave investors confidence that the ECB has finally taken a big step towards stemming the region’s debt woes.
‘The ECB’s actions afford time, allowing risk appetite to stage a comeback for now,’ said Vincent Chaigneau, a strategist at Societe Generale.
‘Mr Draghi has won a battle, but cannot win the euro area crisis war by himself. The hardest task of all – getting governments to drop posturing in return for leadership and deep reforms – still awaits us.’
The euro held steady at $1.2633, hovering near a peak of $1.2652 hit the previous day on trading platform EBS, its highest level since early July.
The single currency inched up 0.1 percent against the safe haven yen to 99.66 yen, not far from Thursday’s two-month high of 99.80 yen.
The yen stabilised after sliding broadly on Thursday, when stronger-than-expected data on U.S. Private-sector employment triggered a rise in Treasury yields and helped drag the Japanese currency lower versus the dollar.
With the ECB steps likely to help boost investors’ tolerance for risk, the yen may be set to weaken further on the crosses, said Tohru Sasaki, chief foreign exchange strategist for JPMorgan Chase Bank in Tokyo.
‘I don’t think it is the case at all that everything will be okay from here on, but at least there is now a certain framework in place,’ Sasaki said, referring to the ECB’s measures.
‘We will probably see a bit of risk-on moves globally and could see the yen weaken and cross/yen pairs push higher,’ he said.
How the yen fares against the dollar, however, will hinge on moves in U.S. Bond yields and on how market expectations for the chances of further Federal Reserve monetary stimulus evolve, he said.
The dollar inched up 0.1 percent to 78.91 yen, holding near Thursday’s two-week high of 79.04 yen.
Investors will be focusing on U.S. Jobs data due later on Friday for further hints on whether or not the Fed will launch another bond-buying programme, or quantitative easing, after its policy meeting next week.
The Australian dollar inched up 0.2 percent to $1.0300 , holding firm after having climbed roughly 0.9 percent on Thursday for its biggest one-day gain in a month as traders trimmed bearish bets against the commodity currency.
A flood of Chinese data on Sunday could provide a challenging backdrop for the Australian dollar, which has retreated over the past month on worries about a slowdown in China, Australia’s single biggest export market. (AGENCIES)
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