The euro fell against most of its major counterparts after a liquidity injection by the European Central Bank (ECB) failed to convince investors that the region’s crisis is abating.
The shared currency weakened this week as 800 financial institutions borrowed a record amount of three-year loans from the ECB, which is expected to leave its benchmark interest rate unchanged on Thursday. The US dollar rose to a nine-month high versus the yen after US Federal Reserve Chairman Ben Bernanke cast doubt on a third round of asset purchases. Canada’s dollar and Mexico’s peso rallied as oil surged to a 10-month high.
“The euro is now more vulnerable to selling against some of the higher-yielding currencies,” said Omer Esiner, chief market analyst in Washington at the currency brokerage Commonwealth Foreign Exchange Inc. “Bernanke didn’t comment much about policy easing and that’s been interpreted as a subtle sign that continued improvement in the data may prompt the Fed to adopt a more neutral policy stance.”
The euro dropped 1.9 percent to US$1.3198 and reached US$1.3187 on Friday, matching a low from Feb. 21. The shared currency lost 1.1 percent to ¥107.97 after touching ¥109.93 on Monday, the highest since Oct. 31 last year. The greenback strengthened 0.8 percent to ¥81.81, rising for a fourth straight week in its longest such stretch since November 2010.
The ECB on Wednesday awarded 529.5 billion euros in a second round of three-year loans to banks, increasing the supply of euros in the market. The euro weakened 3.6 percent in December, during which the central bank held its first three-year refinancing operation, lending 489 billion euros to 523 banks.
“Markets have pulled back after the sugar rush we’ve had from the second longer-term refinancing operation,” said Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce in London. “There is still a great deal of uncertainty, which has been highlighted by the market as we start to see the euro under pressure again.”
Intercontinental Exchange Inc’s Dollar Index gained 1.3 percent to 79.449. The increase is the biggest since the five days ended on Dec. 16 and came after Bernanke’s comments in a US congressional testimony damped speculation the Fed would introduce another round of asset purchases.
The Fed has bought US$2.3 trillion of bonds in two rounds of so-called quantitative easing from December 2008 until June last year. Central bank officials at their January meeting were keeping open the option of a third round of bond purchases in case the economy weakens or inflation falls too low.
“Bernanke described policy as highly accommodative,” Jane Foley, a senior currency strategist at Rabobank International in London, wrote in an e-mailed report on Friday.
The US dollar, she wrote, “is benefiting on speculation that the Fed may not proceed with additional QE.”
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