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Wednesday October 22, 2014 - 00:50:55 GMT
Reuters - www.reuters.com

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FOREX-Euro on defensive after ECB bond buy report, yen slips

8:17pm EDT

* Euro near one-week low after ECB corporate bond buy report

* U.S. housing data, tech earnings, China data help risk appetite, dent yen

By Hideyuki Sano

TOKYO, Oct 22 (Reuters) - The euro flirted with one-week lows on Wednesday following a Reuters report that the European Central Bank is considering buying corporate bonds, while recovery in risk appetite underpinned the dollar against the yen.

The euro traded at $1.2710, near its lowest level since Thursday last week after having fallen 0.7 percent on Tuesday.

Several sources told Reuters the ECB is considering buying corporate bonds on the secondary market and may make a final decision as soon as December with a view to begin buying the bonds early next year.

The move, if realized, would expand the private-sector asset-buying program the ECB began on Monday, which is aimed at fostering lending to businesses in hopes of spurring growth.

"It seems like quantitative easing by the ECB is within sight," said a trader at a Japanese bank.

The prospects of fresh easing by the ECB bring back the monetary policy divergence between Europe and the U.S. under spotlight, helping to underpin the dollar.

The dollar had a three-month rally until September on the view that higher U.S. interest rates down the road will attract funds from Europe and Japan, where rates are likely to stay low due to stimulus by their respective central banks.

The U.S. Federal Reserve is expected to wind up its bond buying programme at its policy meeting next week and Fed officials are also seeking rate hikes even though they are likely to wait several to ensure the U.S. economy can withstand policy tightening.

While some Fed officials earlier this month flagged a possible global slowdown as a risk to that scenario, solid earnings from U.S. tech firms, upbeat U.S. housing data and less worrisome economic figures from China on Tuesday all helped to ease such concerns.

Improved risk appetite reduced the need for speculators to hold on to low-yielding yen, which is often used as a safe-haven currency.

The dollar traded at 107.03 yen, having recovered from Tuesday's low of 106.25 yen.

The dollar index stood at 85.401 , extending its rebound from a three-week low of 84.472 hit a week ago.

The next focus for the dollar will be U.S. inflation data due at 1230 GMT.

Economists expect annual core CPI inflation to stay flat at 1.7 percent in September but a softer reading could undermine the dollar by adding to raising speculation that the Fed could waitlonger before raising rates.

In Asia, Australian CPI is due at 0030 GMT. The Australian dollar traded at $0.8771, having stuck to its familiar trading ranges between $0.865 and $0.890 in the past few weeks. (Editing by Eric Meijer)

Thomson Reuters 2014. All rights reserved.



 

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